The Indonesian Parliament passed Omnibus Law on October 5. In Omnibus Law, there is a tax cluster in Chapter VI, part seven which includes four Articles, namely Articles 111,112,113, and 114. The law, which contains 15 chapters and 186 Articles which had received different opinions. Initially, the tax cluster in Omnibus Law was referred to as “stealth cluster” since it appeared suddenly. However, the Indonesian Minister of Finance, Sri Mulyani, emphasized that this taxation cluster had been included in Law 2/2020 before the Omnibus Law was passed.

This tax cluster covers four main points. Regarding the Income Tax Law, the Value Added Tax (VAT) Law, the Law on General Provisions and Tax Procedures, the Regional Tax and Retribution Law. 

In fact, the policy regarding the taxation in Omnibus Law has been included in the Government Regulation in Lieu of Law No.1/2020 which was later passed into Law No.2/2020. The tax cluster Omnibus Law that has been included in Law No.2/2020 is regarding the reduction of the Corporate Income Tax rate and the imposition of Digital Taxes.

The first discussion regarding the changes in Income Tax Law that has been under the spotlight of many people is the elimination of tax dividend. Dividend income originating from within the country or abroad, which is obtained by individual taxpayers or entities, is exempted from taxation. On the condition that the dividend is invested in Indonesia. This only happens if dividends and after-tax income from a foreign permanent establishment invested in Indonesia is less than 30% of the total profit after tax.

There are additions in Article 26 concerning Income Tax, namely in paragraph (1b) which states that the rate of 20% of the gross amount by parties that are obliged to pay interest, including premiums, discounts and rewards in connection with debt repayment guarantees, can be reduced with Government Regulation.

Article 111 also changes the meaning of individual domestic and foreign tax subjects. Whereas now the domestic tax subject includes foreign citizens with several conditions such as having resided in Indonesia for more than 183 days within a year. This change also applies to Indonesian citizens who are abroad for 183 days for 12 months and fulfill several requirements such as residence, main activity center, and place to carry out daily activities which will be considered as domestic tax subjects too. This means that the state can collect taxes for Indonesian citizens who run their business abroad in order to increase state revenue.

This article also removes the definition of a Permanent Establishment which reads "being in Indonesia for not more than 183 days in 12 months". This means that digital platforms such as Netflix that have offices abroad but have income from Indonesia will still be taxed in accordance with applicable regulations.

There are also changes regarding the imposition of taxes on foreigners. In Article 4 paragraph (1a) foreigners who have become Domestic Tax Subjects will be subject to Income Tax on income received or earned in Indonesia in several provisions. The first provision is that foreigners must have certain expertise and the second is only valid for 4 tax years calculated from becoming a Domestic Tax Subject. However, the exemption from the imposition of Income Tax does not apply to foreigners who take advantage of Tax Treaty between Indonesia and partner countries. Everything related to certain criteria and procedures for imposition of Income tax for foreigners will be regulated in a Regulation of the Minister of Finance.

Changes in the determination of this Income tax do not always lead to major changes. According to Economist Prakarsa Cut Nurul Aidha, one thing that can reduce tax revenue in Indonesia is the emergence of regulations to gradually reduce the corporate income tax rate from 25% to 22%, even though the aim is to increase investment. According to him, it would be better if the government focuses more on law enforcement such as eradicating corruption to increase investment. Because the rate of corruption in Indonesia is also high.

In this Omnibus Law, the government plans to reduce the corporate income tax rate in 2023 to 17%. The background to this is regarding the corporate income tax rate in Indonesia which is different from several other countries that have quite high foreign investment in their country. For example, Singapore has a corporate income tax rate of 17%. Thus applying tax reduction there can be a “tax competition to attract foreign investors in Indonesia.”

According to a review from a lecturer at the University of Indonesia, Faisal Basri revealed that so far Indonesia has become the main attraction for foreign countries to place their investments. For example, Grab has successfully invested in Indonesia and gets higher returns compared to its own country of origin. One of the most respected magazines in London, The Economist, has published a survey on investment interest in several countries. As a result, Indonesia is ranked third in Asia for foreign investment after China and India.

According to data from the Organization for Economic Co-operation and Development (OECD), in 2019 Indonesia was ranked 9th with 0.32 points for the Index of Regulatory Barriers to Foreign Investment in Southeast Asia. Looking at this data, maybe the government wants to make it easier for foreign investment to enter the country. Although it is not certain that this will have a big impact on its future implementation. Because there are still many pros and cons among citizen regarding the articles in Omnibus Law.

The government believes that this change will increase foreign investment in Indonesia. However on the other hand, a reduction in the income tax rate could reduce tax revenue as well. It is expected that the government can provide the best results from Omnibus Law amendments and prioritize the welfare of the people.