Indonesia announces tax relief for manufacturing during virus outbreak

Manufacturing companies in Indonesia will not have to pay out income tax for their workers for six months, under measures to support Southeast Asia’s biggest economy during the coronavirus outbreak, ministers said on Wednesday.

The ministers declined to say how much revenue the government stands to lose from the new measures. It was also not immediately clear whether the tax break on payroll would benefit companies or workers directly.

Finance Minister Sri Mulyani Indrawati has warned economic growth could weaken to 4.7% this year, from 5.02% in 2019, amid increasing business disruptions caused by the virus outbreak.

The central bank has also said it was likely to trim its 2020 growth outlook, currently at around 5.1%, during its policy meeting on March 18-19. Bank Indonesia had already cut rates and lowered its growth outlook last month in response to the coronavirus outbreak.

Indrawati said starting April 1 the government would relax several tax rules, including exempting manufacturing companies from having to pay out income tax, allowing delays in payments of import taxes and accelerating refunds on value-added tax in manufacturing.

Airlangga Hartarto, coordinating minister for economic affairs, said the new tax measures, which may be extended, are meant to support people’s purchasing power and help both the supply and demand side of the economy.

“All of these are aimed at providing some space for industries which are now in a very tight situation. Their burden is going to be minimised by the government,” Indrawati told reporters.

Indonesia has already announced a 10.3 trillion rupiah (US$718.27 million) stimulus package to support consumer spending and tourism.

The new tax relief would be part of a second policy package that would also include simplification of export and import rules, Hartarto said.

Officials have been looking at ways to cut logistics-related costs by easing export and import rules and reducing customs inspections for reputable importers.

Source: Reuters