The Politics of Taxation, Welfare, and National Security (Poltax) research cluster at the Faculty of Administrative Sciences (FIA) Universitas Indonesia (UI) held a national seminar entitled “Indonesia is Ready to Welcome Pillar 2 of BEPS 2.0: Bridging the Paradox of Global Minimum Tax VS Tax Holiday Regime”. In collaboration with the Governance and Tax Accountability (GAP) cluster of FIA UI and the Indonesian Fiscal and Tax Administration Association (IFTAA), this seminar discussed in depth the challenges and benefits of implementing pillar 2 of Base Erosion and Profit Shifting (BEPS) 2.0.
According to the Fiscal Policy Agency of the Ministry of Finance, BEPS is a tax avoidance strategy carried out by multinational companies. This is a taxation challenge that is detrimental to many countries in the world. Therefore, the Organization for Economic Co-operation and Development (OECD) and the Group of Twenty (G20) are working with more than 135 countries, including Indonesia, to implement the 2 pillars of the BEPS action plan in order to tackle tax avoidance, improve international tax rules, and overcome tax challenges arising from the digitalization of the economy.
The second pillar of BEPS is a crucial component of BEPS and has become a major highlight in efforts to reach a global agreement regarding minimum tax. The main focus of this pillar is “Global Minimum Tax” which aims to impose a minimum tax rate for multinational companies. With increasing global tax issues, this pillar is expected to overcome tax depreciation practices carried out by multinational companies and create a fairer tax environment globally.
“In the current era of disruption, tax issues and challenges are a logical consequence that must be faced. This is important to prevent a race to the bottom (competition between various countries or jurisdictions to offer very low tax incentives or tax policies that are very profitable for companies and investors) and ensure that the country and its people do not lose out,” said the Head of the FIA UI Poltax Cluster, Prof. Dr. Haula Rosdiana, M.Si.
Implementing a global minimum tax is important to ensure countries receive their tax rights and attract investment through effective tax instruments. Prof. Dr. Gunadi, M.Sc., Akt, Chair of the GAP Cluster, highlighted the important role of academics and practitioners in providing valuable insights for formulating appropriate tax policies and regulations. He also highlighted the problems that arise with the existence of Tax Holidays which conflict with the determination of the Global Minimum Tax.
Director of International Tax, Directorate General of Taxes (DJP), Dr. Mekar Satria Utama said, “The main goal of BEPS 2.0 is to overcome unhealthy tax competition between jurisdictions, overcome the risks of previous BEPS, and ensure that multinational companies pay minimum taxes in aggregate. In the context of implementing BEPS 2.0 in Indonesia, it was discussed that tax rates below 15 percent would be subject to top-up tax on Ultimate Parent Entity (UPE) companies, and there was a potential impact on the effectiveness of tax incentives, such as Tax Holidays.”
Meanwhile, Wahyu Hidayat, an analyst from the Fiscal Policy Agency (BKF) reminded that Indonesia will inevitably have to implement BEPS 2.0 because many partner countries have already implemented this policy. If not, Indonesia must be ready to give up subsidies to investor countries, which are generally developed countries that have implemented BEPS 2.0.
In a discussion that focused on overcoming differences in perception in interpreting tax laws, Dr. Prianto Budi Saptono, Lecturer at FIA UI, emphasized the importance of synchronization in implementing tax holidays in Indonesia. Furthermore, Drs. Iman Santoso, M.Si as a lecturer at FIA UI said, “Pillar 2 of BEPS has the potential to reduce the practice of race to the bottom and encourage a level playing field, although it can also reduce the effectiveness of tax incentives. Therefore, action is needed in the form of non-tax measures to attract investment to Indonesia.”
The seminar event, which took place in a hybrid manner from the FIA UI Auditorium on Tuesday, 24th of October 2023, presented 70 online participants and 30 face-to-face participants, consisting of leading tax experts and practitioners in Indonesia. This seminar has provided valuable insight into tax challenges in Indonesia and has the potential to create a stronger basis for developing more balanced and effective tax policies in the future.
