Indonesia’s measures to boost tax revenue via deregulation

May 2026 | SPOTLIGHT | CORPORATE TAX

Financier Worldwide Magazine

May 2026 Issue

In Indonesia, tax revenue represents the principal source of state income. Pursuant to Presidential Regulation of the Republic of Indonesia No. 118 of 2025 on Details of the State Revenue and Expenditures for Fiscal Year 2026, revenue derived from taxation dominates the projected targets of Indonesia’s state income for 2026.

This evidences that taxation remains the central pillar of Indonesia’s fiscal framework, with expectations of continued growth year on year.

In light of the increasingly volatile geopolitical and economic conditions experienced over the past decade, the government of the Republic of Indonesia has repeatedly sought to amend and update tax regulations in order to optimise tax collection. Beyond the establishment of new norms, one of the notable measures undertaken by the government has been the implementation of tax deregulation.

This article will examine and summarise Indonesia’s efforts to enhance tax revenue through deregulation initiatives.

Omnibus Law

During the pandemic, the government of the Republic of Indonesia has made several efforts to mitigate adverse economic impacts by enacting omnibus legislation, notably Law 7/2021 on Harmonization of Tax Regulations (HPP Law) and Government Regulation in Lieu of Law 2/2022 on Job Creation (Job Creation Law).

One notable change under the HPP Law and Job Creation Law is the unification of the national identification number and the taxpayer identification number. This reform streamlines tax administration for individual taxpayers by consolidating identification systems. This measure may also enhance tax revenue by facilitating the Directorate General of Taxation’s (DGT’s) ability to monitor individuals’ income and expenses, including those who deliberately refrain from registering for a taxpayer identification number.

Another notable change is reinvestment of dividend. The Job Creation Law introduces a novel concept for the exemption of dividends from income tax. Dividends received by individual taxpayers from domestic or foreign sources will be exempt from income tax provided that they are reinvested in Indonesia for a specified period. This innovative concept is anticipated to stimulate the reinvestment of such dividends in Indonesia, thereby fostering economic growth.

Extension of deadline

The Minister of Finance Regulation 81/2024 on Tax Provisions for the Implementation of the Core Tax Administration System, as amended, introduces an extension of payment and deposit deadlines for several types of taxes.

Previously, taxpayers were required to complete payments no later than the 10th day of the following month after the end of the tax period. Under the new provision, the deadline has been extended to the 15th day of the following month.

This extension applies to a broad range of taxes, including Income Tax articles 4(2), 15, 21, 22, 23, 25 and 26, as well as value added tax.

By granting additional time for compliance, the regulation aims to ease administrative burdens on taxpayers by extending the deadlines, with the intention of enhancing compliance and generating increased tax revenue.

Revamping tax residency

The DGT Regulation PER-23/PJ/2025 on the Determination of Domestic and Foreign Tax Subjects introduces a new administrative framework for assessing tax residency under Indonesian law, moving away from a purely formalistic approach toward a fact-based assessment.

Previously, residency status was largely inferred from the number of days spent in Indonesia or from legal incorporation. This regulation clarifies that they are not determinative and must be evaluated alongside the taxpayer’s actual circumstances.

For individuals, the regulation retains the 183-day physical presence test but supplements it with an inquiry into actual residence and habitual abode. For entities, incorporation under Indonesian law continues to establish domestic tax subject status, but the regulation expands the analysis to include effective management, strategic decision making and operational control.

This substantive test emphasises economic reality and aligns Indonesia’s approach more closely with international tax treaty principles.

Expansion of scope and jurisdiction for exchange of information

The Ministry of Finance (MOF) Regulation 108/2025 on Technical Guidelines for Access to Financial Information for Tax Purposes establishes obligations for certain parties to provide financial information access to the DGT, either automatically or upon request.

This regulation is applicable to, among others, financial institutions (FIs), divided into common reporting standard reporting FIs, which must automatically submit financial account information to the DGT, and non-reporting CRS FIs, which are required to submit information upon request.

It is also applicable to cryptoasset service providers under the Crypto-Asset Reporting Framework (CARF), which must report when meeting any of the nexus criteria, including tax residency, incorporation under Indonesian law, management from Indonesia or the existence of a permanent establishment in Indonesia.

MoF Regulation 108/2025 was enacted as a follow-up to Indonesia’s international commitments to implement automatic exchange of information (AEOI) under the amended CRS and the CARF framework for cryptoassets.

As of 20 January 2026, the DGT announced that Indonesia now participates in AEOI-CRS with 117 jurisdictions, while CRS destination jurisdictions total 92.

Tax treaty applications

MOF Regulation 112/2025 on the Procedures for the Application of Double Taxation Avoidance Agreements establishes a more structured framework for taxpayers seeking treaty relief.

To qualify, taxpayers must fulfil the following criteria.

First, evidence residency in a treaty partner jurisdiction through a valid certificate of domicile (COD). The regulation has simplified the COD form, reducing it from seven sections to six by consolidating substance and beneficial ownership questions.

Second, fall within the treaty’s scope, ensuring that the taxpayer is the genuine beneficiary of the income and not acting as a mere agent, nominee or conduit.

Third, avoid treaty abuse, as benefits may be denied if arrangements are primarily designed to reduce or defer tax rather than support genuine business activity. The tax authority will assess the real purpose and substance of the structure, even where documentation appears complete.

Lastly, satisfy factual thresholds, such as shareholding percentages, holding periods or the absence of a permanent establishment, based on actual economic activity rather than contractual form alone.

This regulation reflects Indonesia’s commitment to aligning treaty application with international best practices, emphasising substance over form and strengthening safeguards against treaty shopping.

Requirements to use book value for tax calculation in reorganisation

MOF Regulation 81/2024 on Tax Provisions for the Implementation of the Core Tax Administration System (as amended by MOF Regulation 1/2026) provides the framework for taxpayers electing to use book value in calculating tax on asset transfers conducted in the context of mergers, consolidations, expansions or acquisitions.

To qualify, taxpayers must demonstrate that such transfers serve a genuine business purpose rather than tax avoidance, in which the key criteria for the business purpose test include: (i) aims to strengthen the capital structure; (ii) continuation of the transferor’s business activities until the effective date of reorganisation; (iii) the transferee continuing the transferor’s business activities and their own business activities for at least four years, with the minimum operating period being reduced from five years by MoF Regulation 81/2024; and (iv) retention of fixed assets for a minimum of two years, unless transferred for efficiency purposes with timely formal request to the DGT.

Taxpayers must apply to the DGT within six months of the effective date of the reorganisation, supported by documentation evidencing compliance with the business purpose test and other supporting documents. The DGT may request supplementary documents, which must be submitted within 15 days. A decision of approval or rejection must be issued within one month of a complete application, otherwise approval is deemed granted by default.

Where the DGT determines that a taxpayer no longer meets the prescribed conditions, approval to use book value may be revoked. In such cases, asset transfers must be reassessed at market value to determine the applicable income tax. Importantly, revocation applies only to the specific taxpayer found non-compliant.

Updating the tax audit rule

The DGT has issued DGT Regulation PER-18/PJ/2025 on the follow-up of concrete data to provide greater certainty in audit procedures.

While MOF Regulation 15/2025 had only outlined a general framework for what constitutes ‘concrete data’, leaving room for subjective interpretation, Regulation No. 18/2025 elaborates on the definition to ensure a more objective and standardised approach.

Under Regulation 18/2025, ‘concrete data’ is defined as information obtained or held by the tax authority, including: (i) tax invoices approved through the tax authority’s information system but not reported by the taxpayer in the value-added tax periodic return; (ii) withholding or collection proof of income tax not reported by the issuer in the periodic income tax return; and (iii) proof of transactions or tax data that can be used to calculate a taxpayer’s obligations, clarified under Regulation 18/2025.

Conclusion

Deregulation has emerged as a new option available to the Indonesian government, aimed at both enhancing tax revenue and providing relief to taxpayers. One notable example of this approach is the government’s decision to exempt dividends from income tax, provided that such dividends are reinvested within Indonesia. This reinvestment mechanism not only encourages capital circulation in the domestic economy but also has the potential to generate taxable profits in the future, thereby creating a sustainable cycle of revenue generation.

Freddy Karyadi is a partner at Protemus Capital. He can be contacted on +62 818 103 949 or by email freddy.karyadi@protemus.id.

Freddy Karyadi

Protemus Capital