Tax holidays remain one of Indonesia’s most powerful tools to attract foreign investment. The question is, which industries reap the most rewards from this enticing fiscal incentive? The Ministry of Finance has identified pioneering industries as the primary beneficiaries, with significant uptake and interest in recent years.
In its 2023 Tax Expenditure Report, the Ministry highlighted that tax holidays for pioneering industries reached a total expenditure of IDR 5.18 trillion. These incentives offer corporate income tax reductions of either 50% or 100% for new capital investments across 18 eligible industrial sectors. The benefit duration ranges from 5 to 20 years, depending on the investment’s value, with a minimum threshold of IDR 100 billion. Throughout 2023, 20 corporate taxpayers accessed these tax benefits.
Although the 2023 figures were lower than the IDR 7.3 trillion recorded in 2021 and IDR 7.94 trillion in 2022, tax holidays for pioneering industries were far more popular than similar incentives in Special Economic Zones (SEZs) or industrial zones. In stark contrast, tax expenditure on SEZ tax holidays amounted to just IDR 36 billion in 2023, while no taxpayers utilized tax holidays in industrial zones.
Expanding Benefits for Future Growth
Looking ahead, the government anticipates growth in tax holiday expenditures for pioneering industries, projecting increases to IDR 5.6 trillion in 2024 and IDR 6 trillion in 2025. Recognizing this potential, policymakers have decided to extend the availability of these incentives.
Originally scheduled to end on October 9, 2024, under Ministry of Finance Regulation (PMK) No. 130/2020, the tax holiday program has been extended to December 31, 2025. This extension is formalized through PMK No. 69/2024, signed by Finance Minister Sri Mulyani Indrawati.
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Tax holidays are specifically targeted at companies in pioneering sectors—industries characterized by extensive linkages, high value addition, technological innovation, and strategic importance to the national economy.
“These incentives are not just fiscal benefits; they represent a commitment to strengthening Indonesia’s economic foundation,” said Sri Mulyani.
Notably, this extension includes a critical regulatory adjustment: tax holidays will no longer apply to foreign or multinational corporations. This change aligns with the global minimum tax rate of 15% under the Global Anti-Base Erosion (GloBE) principle.
Eligible Industries
Under Article 3, Paragraph 2 of PMK No. 69/2024, the following pioneering industries qualify for tax holiday benefits:
- Upstream basic metal industries, including iron, steel, and non-steel products with or without integrated derivatives.
- Refining and processing industries for oil and gas, with or without integrated derivatives.
- Organic basic chemical industries derived from oil, gas, coal, or agricultural resources, with or without integrated derivatives.
- Inorganic basic chemical industries with or without integrated derivatives.
- Pharmaceutical raw material industries with or without integrated derivatives.
- Manufacturers of irradiation, electromedical, and electrotherapy equipment.
- Producers of core components for electronic and telematic equipment.
- Machinery and robotics component manufacturers supporting industrial manufacturing.
- Core component producers for power generation equipment.
- Automotive and automotive component manufacturers.
- Ship, rail, and aircraft component manufacturers, including aerospace support industries.
- Agricultural, plantation, and forestry-based pulp processing industries with or without integrated derivatives.
- Economic infrastructure industries.
- Digital economy sectors, such as data processing, hosting, and related activities.
This strategic extension of tax holiday benefits highlights the government’s focus on attracting investment in high-impact sectors poised to transform Indonesia’s economic landscape. With projections for continued growth, the initiative underscores its importance as a cornerstone of the country’s fiscal policy.
