logo-ahplogo-ahplogo-ahplogo-ahp
  • Home
  • Firm
    • About Us
    • Careers
  • Solutions
      • Banking & Finance
      • Capital Markets
      • Competition Law
      • Debt & Corporate Restructuring
      • Dispute Resolution
      • Energy, Oil & Gas
      • Foreign Direct Investment
      • Fraud & Forensics Investigation
      • Intellectual Property
      • Islamic Finance
      • Labor Law
      • Mergers & Acquisitions
      • Projects & Natural Resources
      • Real Estate & Property
      • Shipping & Aviation
      • Tax & Customs Services
      • Telecommunications & Media
  • Members
  • News & Events
    • News & Insights
  • Rajah Tann Asia
✕
            No results See all results

            Leveling the Playing Field, the Government Cuts Income Tax Rate on Bonds for Local Investors

            Following the decrease in income tax for interests on bonds received by foreign investors to 10% under the Omnibus Law (Law No. 11 of 2020), the government has given the same treatment to local investors under Government Regulation No. 91 of 2021. This Regulation replaces Government Regulation No. 16 of 2009, which was lastly amended by Government Regulation No. 55 of 2019. Under this new Regulation, the final income tax rate on interests from bonds received by local investors decreases from 15% to 10%.

            This Regulation marks a turning point not only for local investors but also for the local bonds market. Moreover, it is also in line with Indonesia’s National Medium-Term Development Planning, which achievement requires significant funding in order to increase financial inclusion, expand innovation of financial products, develop financial services, and optimise means of alternative financing.

            We discuss this new Regulation in more details below.

            Things to Note

            The reduced tax rate applies on any income received or gained by investors in the form of interest, ujrah or fee, profit sharing, margin, and any other similar income derived from bonds issued by the government or non-government institutions, including shariah bonds (sukuk). Individual (wajib pajak pribadi) and corporate taxpayers (wajib pajak badan) can enjoy this treatment, including permanent establishments, mutual funds, and collective investment contracts.

            Under the Regulation, there are three possible income tax bases upon which the reduced 10% tax rate will be calculated:

            1. coupon interest income from interest-bearing bonds (obligasi dengan bunga) during the holding period;
            2. discount from interest-bearing bonds, which is any excess of the selling price or nominal value over the acquisition price of the bonds, excluding any accrued interest; and
            3. discount from non-interest-bearing bonds (obligasi tanpa bunga), which is any excess of the selling price or nominal value over the acquisition price of the bonds.

            Further, if the investor suffers a negative discount or loss when it sells the interest-bearing debt securities, the investor can set off the loss with the coupon interest income.

            The Regulation also expands the parties obligated to withhold the tax. Previously, under the 2019 Regulation, these parties were limited to bond issuers, custodians or securities firms, dealers, or banks as brokers and/or buyers. Now, under the new Regulation, pension funds or mutual funds acting as brokers and/or buyers, as well as custodians or sub-registry that records the transfer of ownership, can withhold the tax.

            Lastly, if the interests are received from government-issued bonds, the recipient of such interests must settle the tax themselves and submit a report on the withholding or settlement of the final tax to the Directorate General of Tax.

            AHP’s Note

            Readers should note that some provisions in the 2019 Regulation have been retained, namely on the tax treatments of interest income received from bonds by pension funds and banks. Any interest income from bonds received by a government-approved pension fund is exempted as regulated under the Income Tax Law (Law No. 7 of 1983 as amended several times and lastly by the Omnibus Law). Meanwhile, interest income from bonds received by banks established in Indonesia or Indonesian branches of foreign banks are not subject to withholding tax.

            As this Regulation is a government-level regulation, the government still needs to issue regulations at the minister level to address the technical aspects of the reduced tax rate. In the meantime, we expect that this reduced tax rate will help boost public interest in bonds, not only from the purchasers’ side but also from the issuers’ side.

            Contacts


            Muslimin Damanhuri
            Partner

             

            D (62) 21 2555 9952
            F (62) 21 2555 7899
            muslimin.damanhuri@ahp.id

             

            Lena Betha Simbolon and Sukhemadewi also contributed to this alert.

             

            More Articles

            • Managing Greenwashing Risk: A Southeast Asian Lens
              May 31, 2023
            • Resolving Construction Disputes through Dispute Adjudication Boards under Indonesian Law
              May 31, 2023
            • BUMN Omnibus Regulations Highlights Special Assignment and Environmental Social Responsibility Programs
              May 25, 2023
            • Regional Competition Bites Q1 2023
              May 24, 2023
            • How KPPU’S New Guidelines Use Data and Quantitative Approach to Enforce Antitrust Measures
              May 17, 2023
            • Assegaf Hamzah & Partners Takes Top Honours at Three Prestigious Legal Awards
              May 15, 2023
            • Constitutional Court Rulings Illuminate Certain Provisions of the PDP Law
              May 4, 2023
            • New KPPU Case Handling Procedure May Allow Dismissal of Anti-Competition Investigation Based on Change of Behaviour
              April 17, 2023
            • New Regulations Relax Criteria for Foreign-To-Foreign Merger and Charge Filing Fees for Merger Notification
              April 12, 2023
            • OJK Sets New Cyber Security Best Practices for the Banking Industry
              April 6, 2023
            By Practice Area
            • Projects & Energy
            • Technology Media & Telecommunications
            • Intellectual Property
            • Real Property
            • Banking & Finance
            • Capital Markets
            • Competition
            • Mergers & Acquisitions
            • Dispute Resolution
            • Tax and Customs

            Jakarta Office

            Capital Place, Level 36 & 37
            Jalan Jenderal Gatot Subroto Kav. 18
            Jakarta 12710,
            Indonesia

            Phone: +62 21 2555 7800
            Fax: +62 21 2555 7899
            Email: info@ahp.id


            Subcribe

            Surabaya Office

            Pakuwon Center, Superblok Tunjungan City
            Lantai 11, Unit 08
            Jalan Embong Malang No. 1, 3, 5,
            Surabaya 60261
            Indonesia

            Phone: +62 31 5116 4550
            Fax: +62 31 5116 4560

            Assegaf Hamzah & Partners


            © 2001 - 2023 Assegaf Hamzah & Partners. All rights reserved.

            Rajah & Tann Asia is a network of legal practices based in Asia.

            Member firms are independently constituted and regulated in accordance with relevant local legal requirements. Services provided by a member firm are governed by the terms of engagement between the member firm and the client.

            This website is solely intended to provide general information and does not provide any advice or create any relationship, whether legally binding or otherwise. Rajah & Tann Asia and its member firms do not accept and fully disclaim, responsibility for any loss or damage which may result from accessing or relying on this website.