The Indonesian Tax Authority (ITA) provides various tax incentives to support companies going public. One of the tax incentives is a corporate income tax (CIT) rate for publicly listed companies (Tbk) set at 19 percent, which is 3 percent lower than the standard rate of 22 percent. This policy is outlined in Law No. 7 of 2021 on Tax Regulation Harmonization (UU HPP). The tax incentive regarding the reduction of the income tax rate for domestic corporate taxpayers in the form of a public company is regulated in Government Regulation No. 55 of 2022 on Adjustments in Income Tax Regulations.
The UU HPP clusters tax provisions as a means for the government to provide economic recovery stimulus, including tax incentives for companies listed on the stock exchange. The Directorate General of Taxes (DGT) encourages companies in Indonesia to conduct initial public offerings (IPOs) on the Indonesia Stock Exchange (IDX). A corporate income tax rate of 19% is competitive within the Asian region.
To qualify for the 19 percent corporate income tax rate incentive, a company must first list at least 40 percent of its shares for trading on an Indonesian exchange. Secondly, the shares must be owned by at least 300 parties. No more than 5 percent of the total issued, and fully paid shares may be owned by any of the 300 parties, a condition that must be met within approximately 183 days or six months and reported to the DGT in the form of a report.
The detailed procedures for granting tax incentives are based on the Ministry of Finance Regulation (PMK) Number 30 of 2020 on the Form and Submission of Reports and the Taxpayer List in Fulfilling the Requirements for the Reduction of Corporate Income Tax Rates for Domestic Corporate Taxpayers in the Form of a Public Company. Eligible companies will be served by the Tax Office for Listed Companies. The Tax Office for Listed Companies is a special tax office for companies listed on the IDX.
Besides the tax incentive in the form of a reduced rate, there are several other tax incentives available for companies listed on the capital market, including:
- A Final Income Tax Rate of 0.1% for Shareholders Who Sell Shares on the Stock Exchange.
This 0.1% final income tax rate is calculated from the gross amount of the share sale transaction value on the exchange, which attracts investor interest in buying shares of public companies.
- Flexibility in Corporate Income Tax Article 25 Installments.
The basis for calculating Article 25 Income Tax Installments for public companies is the financial statements submitted every three months to the exchange and/or the Financial Services Authority. Thus, the Article 25 Income Tax Installments paid by public companies match the company’s financial condition at the time of payment, allowing for accurate annual tax reporting.
The Article 25 Income Tax Installments for public companies are calculated based on the application of Article 17 CIT rates on net income (excluding foreign income, non-taxable income, and income and expenses subject to final tax) as reported in the financial statements, minus: a. Loss compensation b. Article 23 CIT withheld and/or Article 22 CIT collected from the beginning of the Tax Year to the reported Tax Period; and c. Article 25 Income Tax Installments that should have been paid from the beginning of the Tax Year to the reported Tax Period.
These provisions apply for three Tax Periods after the reported period.
In addition to tax incentives, public companies gain other benefits:
- Accessing New Funding Sources
Companies can obtain significant funding in a single transaction through the sale of shares to the public via an Initial Public Offering (IPO). Additionally, the banking sector tends to become more familiar with and trusting of publicly traded companies, particularly regarding the ease of loan provision and a relatively lower credit risk compared to privately held companies.
- Gaining a Competitive Advantage for Business Development
By becoming a public company, numerous competitive advantages are acquired for future business development. These include commitments from shareholders to assist in the company’s development, demands for continual operational improvement to deliver the best results to shareholders, and the ability to sustain business continuity.
- Financing Mergers or Acquisitions with New Share Issuances
Business development through mergers or acquisitions is a popular strategy to accelerate a company’s scale of operations. Public company shares traded on the stock market have a specific market value, making it easier to finance mergers or acquisitions by issuing new shares as a means of financing.
- Enhancing Going Concern Capability
A company’s going concern capability is its ability to continue operating under any condition, including scenarios that might lead to bankruptcy, such as failure to pay debts to third parties, disputes among founding shareholders, or market dynamics that affect the company’s ability to survive. Therefore, a public company’s ability to maintain its ongoing operations is significantly better than that of a private company.
- Improving Company Image
Public companies constantly receive media and financial community attention, offering the benefit of free publicity. This can positively impact the company’s image, benefiting future business development.
- Increasing Company Value
For public companies whose shares are traded on the IDX, valuation of the company’s worth can be obtained at any time. Improvements in operational performance and financial results generally affect the stock price on the Exchange, ultimately increasing the overall value of the company.
