27 October 2021

On 7 October 2021, Indonesia’s Parliament passed the Law on the Harmonization of Tax Regulations (“Law”), comprising nine chapters and 19 articles, which seeks to overhaul the country’s tax structure.

Some of the key changes set out in the Law include:

  • Increase of value-added tax (VAT) rate from the current 10% to 11% from April 2022. The rate will be increased to 12% by 2025.
  • Addition of new 35% income tax bracket for individuals earning more than RP5 billion (approximately US$350,000) annually.
  •  Launch of a tax amnesty programme which will run from January to June 2022. Assets obtained between 1985 and 2015 will be subject to an income tax rate of 6% to 11%, while those obtained from 2016 to 2020 will be subject to income tax of between 12% and 18%. A lower rate of income tax will be available to investors in the natural resource processing, government securities and renewable energy sectors.
  •  A carbon tax will be imposed from April 2022 whereby every kilogram of carbon equivalent emission that exceeds a specific cap will be subject to a charge of RP30 (approximately US$0.21). The carbon tax will initially only be imposed on business entities operating coal-fired power plants.