Taxation in the Middle of the Outbreak

Kompas/Heru Sri Kumoro

Minister of Finance Sri Mulyani explained the macroeconomic framework and the main points of fiscal policy in the Draft State Budget of 2021 in the DPR Plenary Meeting held at the Parliament Complex, Senayan, Jakarta, Tuesday (12/5/2020). The plenary meeting was also held online which was attended by a number of DPR members virtually.

Government policies to minimize the impact of Covid-19 on the national economy, among others, have been formulated in the form of tax incentives and adjustments to several statutory provisions in the tax sector.

The policies are regulated under Finance Ministerial Regulation No. 23/PMK.03/2020 concerning Tax Incentives for Taxpayers (WP) Affected by the Coronavirus Outbreak (PMK No. 23/2020) and Article 4-10 of Regulation in Lieu of Law (Perppu) No. 1/2020 concerning State Financial Policies and Financial System Stability for Handling the Coronavirus 2019 (Covid-19) and/or in the Context of Facing Threats that Harm National Economy and/or Financial System Stability.

Also read : Center-Regional Relations and Coronavirus

Based on these two legal products, taxation policies in the middle of an outbreak can be grouped into a policy of tax relaxation and the tightening of tax treatment of taxpayers and certain types of businesses. Relaxation regulated in PMK No. 23/2020 is realized through the provision of income tax (PPh) incentives for income received by employees (Income Tax Article 21), income tax paid when importing goods (Income Tax Article 22), income tax paid as current tax installments (Income Tax Article 25), and Value Added Tax (VAT) incentives in the form of preliminary returns on overpayment of taxes.

Tax relaxation that is regulated in Perppu No. 1/2020 is provided in the form of the reduction of PPh tariffs for domestic corporate taxpayers and permanent business entities, extension of the time for the implementation of tax obligations and expansion of the types of imported goods that can be provided with customs facilities. The policy to tighten tax treatment is realized through the regulation of tax treatment in trading activities through the electronic system, according to the provisions contained in Article 6-7 of Perppu No. 1/2020.

Also read : The Peak of the Pandemic is Difficult to Determine

KOMPAS/WAWAN H PRABOWO

Residents are stuck in a traffic jam when passing Jl. Ciledug Raya, Kebayoran Lama, South Jakarta, Wednesday (13/5/2020). The large number of residents working during the implementation of large-scale social restrictions (PSBB) have caused a number of roads in Jakarta to remain congested in the morning and evening.

Critical notes

There are four critical notes that can be submitted on the taxation policies in the middle of an outbreak. First, the relaxation policy adopted by the government is based on the assumption that business activities can still run well in the middle of the outbreak.

This means that the PPh incentives provided based on the two regulations assume that employees can still work and the companies can still reap business profits. In fact, a study by Berger et al (IMF Blog, 2020) shows that industrial production and retail sales in China fell by 20 percent in January-February 2020 compared to the same period in 2019. Matthews and Bloomberg (Fortune.com, 10/3/2020) also revealed that the decline in consumer demand, especially in the US, is not influenced by financial ability, but because they avoid traveling and visiting crowded places, such as cinema and theaters.

Also read : Coronavirus and Economic Resilience

Thus, relaxation in the form of incentives of Income Tax Article 22, Income Tax Article 25, VAT incentive, PPh tariff reduction, and customs incentives is not on target. The cessation of industrial activities and retail sales amid the Covid-19 outbreak is related to policies to limit human movements.

That means that operational losses are a necessity so that there is no income tax payable. Alternative policies that can be taken include accelerated depreciation and amortization, and reduction of current year losses from profits in previous years (loss carry back), so companies can get refunds of tax overpayments. Through this policy, the companies’ cash flow can be maintained despite minimum or no operating profits.

Also read : The Dynamics of Policy Respon

Similarly, the PPh policy is borne by the government. Statistics Indonesia (BPS) data shows March 2020 inflation at 0.1 percent and January-March 2020 at 0.76 percent. It means increases in the ability to buy from consumers are not a priority in the middle of the outbreak. Even, the additional purchasing power arising from Article 21 of Income Tax borne by the government can trigger panic spending and encourage consumers to travel or carry out other activities that are not in line with the policy to overcome the spread of Covid-19. Meanwhile, the wave of layoffs is allegedly going to be a trend sometime in the future. This means that the number of beneficiaries of the Income Tax Article 21 incentive policy will be relatively small.

Second, the relaxation policy only targets business activities in manufacturing. This argument is concluded from the 440 classification of business fields of the taxpayers that can obtain Income Tax Article 21 incentives and 102 taxpayer business field classifications that can get Article 22, Article 25, and VAT incentives. In fact, the economic contraction is also experienced by the capital market. Since the announcement of Covid-19 as an outbreak by WHO, 11 March 2020, the Composite Stock Price Index has fallen 688.06 basis points as of 1 April 2020. Tax incentives should also be given to capital markets to convince investors to hold their funds longer. For example, tax incentives are provided in the form of a deduction in Article 26 income tax rates on profits due to the transfer of assets (capital gains), if assets (for example, stocks) are not transferred within a certain period.

Also read : Post-Covid-19 Indonesia

Third, the tax relaxation policy only reduces the budgetary function of the tax without balancing it with the optimization of the tax-regulating function. In the context of handling the Covid-19 outbreak, the potential for lost state revenue from providing tax incentives wherever possible is directly related to efforts to tackle the outbreak. For example, tax incentives can be given to manufacturing companies that can transfer production to produce the tools needed to handle the outbreak.

In the context of allocating corporate social responsibility funds (CSR) and facilitating the collection of non-governmental funds by the community in handling the outbreak, the government can relax the rules regarding the contribution of national disaster mitigation regulated in PP (Government Regulation) No. 93/2010. The form of relaxation can be an increase in the contribution limit that can be deducted from gross income. This policy can encourage taxpayers to contribute in the context of handling the outbreak.

Also read : Pandemic, Recession, and Mitigation

KOMPAS/LASTI KURNIA

A man is silhouetted against a monitor showing the Jakarta Composite Index (JCI) on Monday (2/3/2020) at the Jakarta Stock Exchange in South Jakarta. The JCI fell to 5,361 at the close of trade on Monday (2/3), weakening 1.68 percent from last week’s close following the government’s announcement of the first confirmed cases of COVID-19 infection in the country.

Extraordinary policy

Fourth, the policy of tightening tax treatment of trade activities through a disproportionate electronic system with the aim of issuing a Perppu, namely to anticipate the impact of Covid-19 on the national economy. There are two things that need to be considered when the House of Representatives will approve Perppu No. 1/2020 into law. First, the regulation of taxation on trading activities through electronic system (e-commerce) is not urgent to be regulated in a Perppu. Apart from the fact that this tax concept is still liquid, this unilateral tax imposition actually contradicts the results of the G-20 Summit, which in June 2019 agreed to reach a consensus on the imposition of this tax by the end of 2020.

Besides that, the imposition of tax on foreign e-commerce companies can unilaterally sparked a trade war, which almost occurred between France and the US. The French president finally agreed to delay taxation on foreign e-commerce companies, including the US giant Amazon.

Second, the imposition of taxation on foreign e-commerce companies in the midst of the Covid-19 outbreak is actually counterproductive because it can hamper the supply chain of goods needed by the public. One logical consequence of the implementation of large-scale social restrictions in accordance with PP No. 21/2020 is the increase in e-commerce volume. When e-commerce services are not provided by local retail companies, consumers will switch to foreign e-commerce. With the imposition of tax on foreign e-commerce companies, the companies can shift their tax burden to consumers. Finally, extraordinary circumstances need to be responded to with extraordinary policies as well.

DOKUMENTASI PRIBADI

Adrianto Dwi Nugroho

On the one hand, this means that obsolete forms of policy such as PPh borne by the government are no longer relevant. On the other hand, this out of the box policy in the form of taxation on foreign e-commerce companies cannot be applied because it is not proportional to the purpose of handling the outbreak. Aside from being not urgent, this policy can disrupt the fulfillment of community needs amidst their limited mobility.

ADRIANTO DWI NUGROHO, Tax law lecturer, School of Law, Gadjah Mada University; doctoral student at the University of Helsinki, Finland.