Government Immediately Gives Tax Relief for Unicorn Startups

President Joko Widodo revealed a tax relief plan for unicorn startups as a form of support for the digital economy, after being re-elected to lead Indonesia for the next five years.

In an interview with Nikkei Asian ReviewAccording to him, the tax breaks will help Indonesia find the next unicorn, as well as increase investment in Southeast Asia's largest economy.

"We want Indonesia to be a home for tech giant. We have market and skilled workers. And Indonesia already has four unicorns, we will always encourage startups and give them room to grow," said Joko Widodo.

Indonesia's digital economy is estimated to be worth $27 billion in 2018, three times the size of Singapore. Four local unicorns, Gojek, Traveloka, Tokopedia, and Bukalapak are said to have helped the economy by around 5% annually for the last half decade.

Jokowi explains the tax relief plan (super deductible tax) is being discussed by the Ministry of Finance and will be released next month. This step aims to encourage the development of human resources in the digital sector, export-oriented industries, and local businesses that produce imported substitutes.

"Hopefully it will make investors more enthusiastic to invest in Indonesia," he added.

In addition, Jokowi also said that to make Indonesia the largest economy in 2020, there needs to be a ripple effect by connecting online and offline ecosystems. Therefore, he encouraged Indonesian unicorns to help small and micro businesses grow together.

"That means unicorns don't grow alone, they have to bring in small businesses (to grow together)."

This tax relief plan is contained in PP No. 94 of 2010 concerning Taxable Calculation and Income Tax Settlement (super deductible tax) in the Current Year.

In PP revision, will contain the question of giving a tax reduction of 100% plus 100% for companies that invest in the field of human resource development through vocational education.

Actually, the government also plans to provide tax breaks for companies that develop research in Indonesia. However, this rule is still being studied.

Target taxes from Google and Facebook

At the G20 meeting in Japan, G20 countries have agreed on international tax cooperation and increasing tax transparency globally. This collaboration is carried out to combat tax evasion, as well as to face the digital era that causes the erosion of the tax base around the world.

This issue still haunts Indonesia, the tax office conveyed to Jokowi. Companies such as Google and Facebook fail to pay income taxes, despite generating large amounts of advertising revenue in Indonesia.

Quoted from Indonesian CNNMinistry of Finance Minister of Finance Sri Mulyani Indrawati said that so far the government has tried to impose taxes on a number of digital companies on a basis that is in line with the G20 countries.

In this case, the tax is imposed on its business activities in Indonesia, even though the office is located in another country with a lower tax rate.

The plan is that the G20 countries will agree on an international tax framework and principles to prevent tax evasion efforts and deal with digital economic developments at a meeting in Saudi Arabia next year.

"With international cooperation and global tax transparency, it will be increasingly difficult for anyone to avoid and hide tax obligations," said Sri Mulyani.