Exporters of Natural Resources and Manufacturing are Not Tempted to Park Foreign Exchange Proceeds from Exports

Foreign exchange from exports is often used for working capital by exporters so it is not saved.

KOMPAS/TOTOK WIJAYANTO

A truck carrying containers leaves the Container Terminal at Tanjung Priok Port, Jakarta, on Sunday (19/5/2024). The government has issued Minister of Trade Regulation No. 8 of 2024, which has been in effect since Friday (17/5/2024). This was done to accelerate the release of imported containers from the port.

JAKARTA, KOMPAS — The income tax relief incentives offered by the government are apparently not attractive to natural resource exporters to place foreign exchange proceeds from exports in the system domestic finance. The reason is that exporters need the funds from their exports to be immediately turned back into production capital.

The Chairman of the Indonesian Palm Oil Entrepreneurs Association (Gapki), Eddy Martono, stated that the call for natural resource exporters to place their export earnings in Indonesia is not appropriate for the palm oil industry. The reason is that many entrepreneurs need funds from foreign exchange for working capital.

"If DHE is detained or put on hold, then the business owner must cover it with a bank loan for working capital and operations," said Eddy, contacted on Friday (24/5/2024).

Eddy added that bank loan interest is still higher than DHE incentives. Currently bank loan interest is around 7-9 percent per year. Meanwhile tax incentives for storing DHE in Indonesia are not that big.

Government Regulation (PP) Number 22 of 2024 concerning Income Tax Treatment on Income from Export Earnings of Natural Resources (SDA) Placement of Foreign Exchange (DHE) in Certain Monetary and / or Financial Instruments in Indonesia regulates the tax incentive scheme for placement of DHE in domestic financial system.

DHE deposited in foreign currency with a placement period of more than 6 months will receive a zero percent income tax rate (PPh). For placements of up to 6 months, the PPh rate is 2.5 percent.

Regarding the placement period of 3 to 6 months, the income tax rate is 7.5 percent. For placements of 1 to 3 months, an income tax rate of 10 percent applies.

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This regulation also governs foreign exchange holdings, which are stored in Indonesian rupiah. Foreign exchange holdings that are stored in the form of rupiah for more than six months are subject to a zero percent income tax rate. Placements of 3-6 months are subject to a 2.5 percent income tax rate, while placements of 1-3 months are subject to a 5 percent income tax rate.

The commodity of palm oil is a natural resource that is a mainstay of Indonesia's exports. According to the Central Statistics Agency (BPS), exports of animal/plant fats and oils in the period of January-April 2024 reached 7.83 billion US dollars. The export of this commodity contributed 9.55 percent to Indonesia's total exports during that period which amounted to 81.92 billion US dollars.

The Chairman of the Indonesian Association of Fish Processing and Marketing Entrepreneurs (AP5I), Budhi Wibowo, said that the regulation on storing DHE does not benefit fish exporters. This is because fish exporters need DHE to purchase raw materials and operationalize production, not simply to be stored in financial instruments.

They have been experiencing this issue for a long time, since the previous regulations regarding DHE were in effect. The regulation in question is Government Regulation Number 36 of 2023 concerning DHE from Natural Resource Management, Utilization, and/or Processing Activities.

Under this regulation, natural resource exporters with export revenues exceeding 250,000 US dollars must retain 30 percent of their foreign exchange earnings for 3 months. "If this Regulation No. 36 of 2023 is not revoked for fisheries, then we just have to wait for the bankruptcy of the exporters," said Budhi on Friday.

Also read: Stimulates Exporters to Save Foreign Exchange in RI, Government Gives Tax Incentives

The Chairman of the Indonesian Export Company Association (GPEI), Benny Sutrisno, said that tax incentives regarding the placement of Foreign Exchange Certificates (DHE) in domestic banks is something interesting. This is because exporters are given the option not only to place DHE in the form of foreign currency deposits, but also in rupiah.

He added that the zero percent income tax rate for DHE deposits that exceed 6 months is quite attractive for exporters to consider keeping their DHE in the country. However, this incentive is not appropriate for manufacturing industry exporters.

The reason is that the manufacturing industry still heavily relies on imported raw materials. Thus, the manufacturing sector's emissions of greenhouse gases are usually also driven by the purchase of imported raw materials.