Starting in 2025, Indonesia will officially adopt the global minimum tax (GMT), an initiative led by the Organisation for Economic Cooperation and Development (OECD) with a standard tax rate of 15%. The move signals a significant shift in the country’s tax policy, ensuring Indonesia no longer misses out on taxation rights for foreign companies operating within its borders.
Head of the Fiscal Policy Agency (BKF) at the Ministry of Finance, Febrio Nathan Kacaribu, underscored the importance of this policy, emphasizing the consequences if Indonesia fails to claim its right to tax these companies. “If we don’t collect this tax, the investor’s home country will. We don’t want to see that happen,” he stated during a discussion at his office in Jakarta on Friday, October 4, 2024.
According to Febrio, Indonesia’s decision is motivated by a desire to avoid effectively subsidizing the budgets of other countries. He explained that when Indonesia grants tax holidays to companies—sometimes reducing their tax obligations to zero—those foreign governments can step in to collect the 15% tax. “It’s like we’re subsidizing their national budget, and that’s something we’re not willing to do,” he asserted.
This shift toward GMT is not unique to Indonesia. Many nations have aligned on this issue, recognizing that granting generous tax incentives can often result in losing the ability to collect corporate income tax.
“Most countries are on the same page. By 2025, we expect to see a majority of them, including Indonesia, applying this minimum tax,” Febrio said.
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The global minimum tax is part of a broader effort led by G20 and OECD countries to counter aggressive tax planning practices and profit shifting to low-tax jurisdictions. Two key mechanisms have been established to ensure this, starting with a standard minimum tax rate and the introduction of a top-up tax.
The first mechanism, the agreed minimum tax rate, is part of OECD’s Pillar Two. Its primary goal is to prevent multinational corporations from moving their profits to tax havens or countries with extremely low tax rates. The second mechanism, known as the top-up tax, comes into play when a company is taxed at a rate lower than the agreed minimum in a particular country. In such cases, other countries may impose an additional tax to bring the total tax rate up to the required level.
Under the terms agreed upon by G20 and OECD member states, the minimum tax rate is set at 15%. This rate will be applied to multinational enterprises (MNEs) with an annual income exceeding 750 billion euros, or approximately IDR 12.7 trillion, in a single fiscal year.
Febrio highlighted the critical role this policy will play in protecting Indonesia’s tax revenue, especially at a time when the country is working to ensure that its tax policies are competitive yet fair. “Other countries fully understand the need for this approach. By implementing GMT, we can ensure that Indonesia’s tax rights are preserved, and we aren’t left subsidizing the budgets of foreign nations,” he reiterated.
The introduction of this tax policy is a strategic move aimed at enhancing Indonesia’s financial sovereignty, ensuring that the country collects its fair share of taxes from global companies benefiting from its economy. While the move may signal the end of certain tax breaks, Febrio emphasized that the broader goal is to ensure a more equitable and sustainable tax system moving forward.
This policy shift aligns with the global trend, as major economies prepare to adopt the same principles in the coming years, creating a more level playing field in international taxation. Indonesia’s decision to implement GMT reflects its commitment to staying competitive while safeguarding its fiscal interests in the global market.
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