BATAMCLICK.COM: Indonesia, as a developing country with significant economic potential, faces new challenges in the global economic landscape.
One of these challenges is the implementation of the global minimum tax (GMT) policy under the Global Anti-Base Erosion (GLoBE) agreement, part of Pillar 2 coordinated by the Organization for Economic Cooperation and Development (OECD) and endorsed by the G20. This policy aims to address tax avoidance by multinational corporations.
The policy could impact investment climates, especially for countries with lower tax systems. Currently, over 40 countries, including Indonesia, have officially implemented this policy.
In 2021, OECD member countries agreed to enforce a global minimum tax rate of 15% on multinational corporations’ profits. This policy aims to reduce harmful tax avoidance practices, protect the global economy, and ensure that companies pay a fair share of taxes in the countries where they operate.
Indonesia needs to respond wisely to this policy to maintain its investment appeal while increasing domestic tax revenue.
Indonesia’s Economic Context
Indonesia is the largest economy in Southeast Asia, with a continuously growing Gross Domestic Product (GDP). The country recorded economic growth of 5.72% in 2022, despite subsequent challenges influenced by global uncertainties, including geopolitical turmoil, global inflation, and the impact of monetary tightening in advanced economies.
The Indonesian government continues to implement structural reforms to support long-term growth, including enhancing investments in priority sectors, to maintain macroeconomic stability and overall economic competitiveness.
According to data from the Ministry of Investment/Investment Coordinating Board (BKPM), Indonesia’s investment realization in 2022 reached IDR 1,208 trillion, with the largest contributions coming from the manufacturing, mining, and infrastructure sectors.
Although Indonesia remains attractive to foreign investors, fair taxation policies and economic stability are key factors in sustaining a consistent flow of investments.
The implementation of the global minimum tax will significantly impact Indonesia’s investment climate. Countries with lower corporate tax rates, such as Indonesia, may need to adjust their tax rates to align with the new global standards.
Potential Impacts
Some impacts to consider include changes in tax competitiveness. Indonesia has traditionally been known for its relatively low tax rates, which serve as an appeal for foreign investors. However, with the global minimum tax policy, Indonesia might need to raise its tax rates to ensure multinational corporations pay fair taxes. This could affect Indonesia’s competitiveness compared to countries offering lower tax incentives.
Next, the revision of tax incentives for specific sectors. To mitigate the potential decline in investment attractiveness, Indonesia may need to adjust its tax incentive policies, such as providing special incentives for desired sectors like technology, renewable energy, and manufacturing. This way, even with the global minimum tax, strategic sectors can remain appealing to investors.
Another impact is the shift of investments to countries with lower tax rates. Some investors may seek countries with lower tax rates to avoid negative effects from the global minimum tax. This could lead to a shift in investment flows to countries with investor-friendly tax systems, potentially reducing Indonesia’s tax revenues.
Promoting Investment Growth
Facing the challenges posed by the global minimum tax, Indonesia needs to undertake strategic efforts to promote investment growth amidst these policy changes.
Some of the steps that can be taken include:
- Enhancing Tax Certainty and FairnessIndonesia must create a more transparent and fair tax system. Certainty in taxation regulations will instill investor confidence to invest in Indonesia. Therefore, simplifying the tax system and consistent law enforcement are crucial.
- Improving Infrastructure and ConnectivityIndonesia’s infrastructure sector still faces many challenges. Investments in physical infrastructure, such as roads, ports, and airports, as well as digital infrastructure like internet access and electronic payment systems, will enhance Indonesia’s attractiveness as an investment destination. Good infrastructure reduces logistics costs and increases operational efficiency for companies.
- Focusing on Priority Sectors and InnovationIndonesia should encourage investments in sectors with high growth potential, such as technology, renewable energy, and innovation-based manufacturing. The government can provide special incentives for these sectors, including tax breaks, workforce training, and support for research and development.
- Enhancing Human Resource QualityWith technological advances and globalization, skilled and highly educated workers are an attractive factor for investors. Improving education quality and vocational training is a strategic move to ensure Indonesia has a workforce ready to meet global market demands.
- International Collaboration and Economic DiplomacyInternational cooperation is essential to minimize the negative impact of the global minimum tax policy. Indonesia must actively participate in international forums to ensure that its tax policies provide room for developing countries to maintain investment appeal.
Response to the Global Minimum Tax
Indonesia’s response to previous international tax policies provides useful insights.
In 2020, Indonesia, through the Ministry of Finance, implemented a tax amnesty policy to repatriate offshore funds. This policy successfully attracted over IDR 4,000 trillion, demonstrating that appropriate tax policies can boost participation from companies and individuals in the tax system.
Additionally, Indonesia has sought to improve its tax system through the implementation of Coretax—a technology-based taxation system designed to enhance tax collection, reporting, and monitoring efficiency. Coretax is an integrated and comprehensive taxation information system expected to bring significant transformation in Indonesia’s tax administration.
Despite its significant potential, Indonesia faces challenges, particularly in balancing tax collection with investment attractiveness. In addressing the global minimum tax, Indonesia must ensure its tax policies are business-friendly while boosting national revenues for development.
Expert Perspectives
Economic experts offer diverse views on the global minimum tax policy and its impact on Indonesia. Dr. Ari Kuncoro, an economist and rector of the University of Indonesia, believes that implementing GMT could positively impact global fiscal stability and encourage higher-quality investment flows.
He notes that developing countries previously used for tax avoidance by multinationals may now gain more tax revenue from these companies.
Meanwhile, Prof. Peter Egger, Professor of International Economics at ETH Zurich, provides a more optimistic outlook on GMT implementation. He argues that while GMT enforces more uniform tax policies and reduces tax arbitrage opportunities, it creates a more stable and attractive environment for long-term investors, particularly in developing countries.
The implementation of the global minimum tax presents new challenges for Indonesia in maintaining investment attractiveness. However, with appropriate policies, Indonesia can still foster investment growth.
Efforts to enhance tax transparency, improve infrastructure, and focus on strategic sectors will be key to navigating this new era of global taxation.
Ultimately, Indonesia must continue innovating its economic policies to remain a leading investment destination in Southeast Asia.
*) Dr. M. Lucky Akbar, SSos, MSi, is the Head of the Tax Data and Document Processing Office in Jambi.
Sumber: Antara
