Stimulating Exporters to Save Foreign Exchange in RI, Government Provides Tax Incentives

It is believed that tax incentives can increase foreign exchange earnings from exports or DHE.

US dollar illustration.

JAKARTA, KOMPAS — The government continues to encourage exchange rate stabilization in the country. Most recently, the government released tax incentive regulations as a stimulus for natural resource exporters to want to save foreign exchange from exports or DHE in the domestic financial system.

With an increasing amount of foreign exchange reserves stored within the country, the hope is for a greater supply of US dollars to aid in stabilizing the exchange value of the rupiah.

This incentive is regulated in Government Regulation (PP) Number 22 of 2024 regarding the Treatment of Income Tax on Income from Export Earnings (DHE) of Natural Resources (SDA) Placement in Certain Monetary and/or Financial Instruments in Indonesia. This regulation was established and announced by President Joko Widodo on Monday, May 20, 2024.

The regulation governs the final Income Tax (PPh) rate for natural resource exporters who place DHE (export earnings) in monetary instruments or financial instruments within the country.

"To support the policy of importing and placing foreign exchange revenue from natural resource exports into the Indonesian financial system, it is necessary to provide special policies in the field of Income Tax," stated the President's consideration in the regulation.

For DHE stored in the form of foreign currency (forex) with a placement period of more than 6 months, a 0% income tax rate will be obtained, while a rate of 2.5% is charged for a 6-month placement. Meanwhile, a rate of 7.5% will be charged for a period of 3-6 months, and a rate of 10% is charged for storage of 1-3 months.

In addition, this regulation also governs DHE which is kept in Indonesian rupiah currency after being converted from foreign currency. For DHE held in rupiah for more than six months, a 0 percent income tax rate applies. Meanwhile, for placements of 3-6 months, a rate of 2.5 percent applies. For placements of 1-3 months, a rate of 5 percent applies.

The Chairman of the Indonesian Exporters Association (GPEI) Benny Sutrisno stated that he is unable to comment much on the regulation at this time, as it has only just been released. His team still needs to calculate the benefits obtained from the tax incentives.

"I will study these rules first," said Benny when contacted on Thursday.

Also read: BI Projects Rupiah Exchange Rate to Strengthen to IDR 15,800 Per US Dollar in Quarter IV-2024

Additional instruments

Bank Indonesia Governor Perry Warjiyo has welcomed the presence of tax incentive regulations for natural resource exporters to store foreign exchange reserves in the country. The government and Bank Indonesia now have an additional instrument to attract even greater foreign exchange inflows into the Indonesian financial system.

"So this will positively encourage the placement of DHE SDA to increase it, and of course not only support economic stability, but also exchange rate stability rupiah," said Perry during a press conference at BI Head Office, Jakarta, Wednesday (22/5/2024).

Added by Senior Deputy Governor of BI Destry Damayanti, the tax incentive regulation is believed to increase DHE more towards the domestic financial system.

He explained that before the tax incentive was introduced, the central bank already had monetary instruments to encourage exporters to keep foreign exchange in the domestic financial system through the Foreign Exchange Term Deposit instrument. Through this instrument, the central bank provides a competitive deposit interest rate with those offered abroad, so that exporters are interested in keeping foreign exchange in the domestic financial system.

Destry explained that the Foreign Exchange Special Transactions (DHE) entering through TD Valas is stable in the range of 1.8 billion to 1.9 billion US dollars per month. "With the PP, I am optimistic that it can be even greater," said Destry.

The Foreign Exchange DHE Time Deposit will take effect on March 1, 2023. The duration of this Foreign Exchange Time Deposit is offered for the first time for tenors of 1, 3, and 6 months.

Citing the Jakarta Interbank Spot Dollar Rate (Jisdor), the exchange rate of the rupiah in Wednesday's (22/5/2024) trade closed at Rp 15,995 per US dollar. This figure strengthened by 281 basis points or 1.72 percent compared to the end of April trading, namely on April 30th which was at the level of Rp 16,276 per US dollar.

Previously, throughout April, the exchange rate of the rupiah experienced a weakening trend. On April 1, the exchange rate of the rupiah was at the level of Rp 15,909 per US dollar, but at the end of that month, the rupiah was at the level of Rp 16,276 per US dollar.

Also read: Trade Surplus and the "Shake" of the Rupiah

Incentives to attract investment

Executive Director of the Institute for Development of Economics and Finance (Indef), Esther Sri Astuti, said that the way to strengthen the value of the rupiah is by attracting as much supply of US dollars as possible into the domestic financial system.

However, according to him, the tax incentives are too expensive just to maintain the stability of the rupiah exchange rate. This is because the country also needs additional tax revenue to support its fiscal policies.

Moreover, according to Esther, if those exporters have already finished storing DHE for more than 6 months or when the period of the 0% income tax incentive ends, they could potentially destabilize the exchange rate of the rupiah again.

"That's just a pseudo-effort," he said, Thursday.

According to Esther, it is better for tax incentives to be directed towards attracting investments into the country. With the influx of investments, there will be additional job opportunities and increased manufacturing productivity. The economy will roll and the country can also regain taxes from the salaries and expenses of workers.