Infrastructure development is the government’s capital sector to achieve more equitable economic growth. Infrastructure is used as one of the benchmarks of a country’s development. From time to time, the infrastructure built by the government is increasing. Taxes have an essential role because taxes are a source of state revenue to finance state spending, including financing of infrastructure developments such as roads, bridges, public schools and public hospitals.
The government seeks further to increase the financial feasibility of infrastructure development projects and realize available public services through infrastructures at affordable rates, so the government provides the following facilities:
a. The feasibility support for infrastructure provision activities under the Public-Private Partnership (PPP) scheme. This effort is supported by the issuance of Director General of Taxes Regulation Number PER-29/PJ/2018 concerning the Treatment of Income Tax on Feasibility Support in Government Cooperation Projects with Business Entities in Infrastructure Provision.
The feasibility support can be provided during the construction period or after the commercial operation date is reached as agreed in the Cooperation Agreement. Eligibility support received applies the following conditions:
- The business entity records the feasibility support as deferred income during the construction period and is capitalized as Intangible Assets – Feasibility Support when the commercial operation date is reached.
- If feasibility support is received during the construction period, deferred income is recognized as income when the commercial operation date is reached. If feasibility support is received after the commercial operation date has been reached, income is recognized when the feasibility support is received.
- Each time income is recognized, at the same time, the business entity also records the amortization expense of intangible assets following the provisions of the tax laws and regulations in the same amount.
Thus, the business entity does not pay income tax on feasibility support when feasibility support is received, instead, the tax payment occurs gradually over the concession period which can reach a maximum of 20 years so as to ease the flow of business entities’ money. Through the provision of this special treatment, the Director General of Taxes hopes that the interest of the private sector will increase in infrastructure development projects through the PPP scheme.
b. Incentives in the form of a reduction in corporate income tax (CIT) are given to corporate taxpayers who make new investments in Pioneer Industries (one of which is economic infrastructure) with a new investment value of at least IDR 100,000,000,000 (one hundred billion rupiahs).
Income tax deduction for entities that make new investments in Pioneer Industries is given as follows:
- 100% of the amount of corporate income tax payable for new investment with a minimum value of IDR 500,000,000,000 (five hundred billion rupiahs)
- 50% of the amount of corporate income tax payable for new investment with a minimum value of IDR 100,000,000,000 (one hundred billion rupiahs) and a maximum of less than IDR 500,000,000,000 (five hundred billion rupiahs)
To be able to obtain the deduction, corporate taxpayers must meet the following criteria:
- corporate taxpayer is a Pioneer Industry;
- status as an Indonesian legal business entity;
- make new investments that have never been issued;
- has a planned new investment value of at least IDR 100,000,000,000 (one hundred billion rupiahs);
- comply with the provisions on the ratio between debt and equity;
- commit to starting the realization of the investment plan no later than 1 (one) year after the issuance of the CIT reduction decision
To carry out development, the government cooperates with construction service business entities. The construction service business entities are divided into Small (K1 and K2), Medium (M1 and M2), Large (B1 and B2) and Do not Have Qualifications. Construction service entities are required to have a Construction Service Business Entity Certificate or commonly abbreviated as SBUJK, which is issued based on qualifications above. SBUJK can be used as evidence that the business entity has qualifications in its business field.
On October 29, 2021, the government of the Republic of Indonesia enacted the Law on the Harmonization of Tax Regulations (UU HPP). This Law was formed to increase sustainable economic growth and support the acceleration of economic recovery, create a more just and legal certainty taxation system and increase voluntary taxpayer compliance in Indonesia by alleviating the burden on taxpayers, one of which is through lowering the income tax rate on construction service.
There is a reduction in the tax rate on construction services income under the HPP Law. Types of construction services are divided into three, namely Construction Consulting, Construction Work, and Integrated Construction Work. Following are the changes in tax rates on construction services income based on the HPP Law:
Type of Work
Carried Out by
Service providers who have a small qualification business entity certificate or a certificate of business competence of an individual business
Service providers who do not have a business entity certificate or a certificate of business competence of an individual
Other service providers as referred to in letter a and letter b (medium and large Certificate Construction Works)
Integrated construction work
Service providers who have a business entity certificate
Integrated construction work
Service providers who do not have a business entity certificate
Construction consultancy services
Service providers who have a business entity certificate or work competency certificate for an individual business
Construction consultancy services
Service providers who do not have a business entity or work competency certificate for an individual's business
The rate adjustments above were carried out in order to make the business climate in the construction services sector more conducive and also continue to grow because the construction services industry is seen as an important sector in creating economic growth and supporting domestic development.