Measuring the Benefit of Covid-19 Tax Incentives

During this pandemic, we learned many things that the toughest challenges in the business not only come from the economic crisis, natural disasters but furthermore, the virus without vaccines. Covid-19 is an epidemic where no vaccine has been discovered yet, causing stagnation in the business without a certainty when the business world will return to normal. The “Normal” referred is normal before pre-Covid-19 and not a new normal that is often heard in the mass media. Although the majority of the business world is affected by Covid-19, there are some industries that have increased their profits, which are pharmaceutical, fast food and service providers. However, the government can’t depend only on some industrial considering the majority of business sectors in Indonesia are trade, services and manufacturing sectors that rely on labor-intensive so the country needs to provide concrete steps to re-encourage the business.

Current condition, the government has issued tax incentives as stimulus to business with the purposes that the affected industries can re-opening soon. The incentive contained in Perppu 1 of 2020 is reducing the taxpayers' rates to 22% which was previously 25%, PMK 44/2020 which provides tax 21, article 22, article 25, PPN restitution and exemption of income tax for MSMEs. Sri Mulyani stated more than 1.062 industries would receive tax incentive. The total budget for tax incentives is IDR 120,6 trillion. The budget for PPH 21 is 8,6 trillion, PPh 22 incentives is IDR 8.15 trillion, PPh 25 is IDR 4.2 trillion, and the acceleration of PPN restitution is IDR 1.5 trillion while the rest are for MSME income tax, reduction in Corporate Income Tax rates and stimulus reserves.

The latest, the realization benefit of tax incentives is only 6,8% or equivalent to IDR 8,2 trillion. The low participation is certainly not due to technical because it can be done online. Representatives of Indonesian Employers Association (Apindo) stated that Income Tax Article 25 incentive that provides tax relief of 30% is considered insufficient. The tourism sector, especially in Bali, has decreased up to 90% and even closed temporary. Income tax Article 25 are calculated based on condition of 2019, where the business was in normal. The fact that operations have fallen sharply lead the affected companies to not have enough cash flow to make payment that are only given 30% relief. Another possibility which is avoided by taxpayers if the Article 25 continue to be paid, taxpayers will have overpaid status in 2020 with the consequences of being audited.

Article 21 incentive is given to employees by not cutting their income. The incentive is certainly a breath of fresh air for employees, but the facts show that almost all businesses temporarily close down and even though there are still operating, they make salary cuts to their employees, unpaid leave even termination of employment. Article 21 incentives isn’t the answer because employers and employees donn’t feel the benefit optimally. There aren’t any different from other incentives which are PPh 22, MSME Final PPh and the acceleration of VAT refunds. The main reason why incentives aren’t realized because there is no demand in the hospitality. In the end, all of the incentives cannot be said to be stimulus for entrepreneurs so participating the incentives or not, is considered the same. The strong words can be explained why the realization of tax incentives is still very low.

The short-term solution is increasing consumption and not investment as explained by M. Chatib Basri in his article. By increasing consumption, economic stagnation arise slowly. The problem that arises by increasing consumption is spending power from public is weak. Therefore a concrete policy is needed that start from reforming the consumption patterns of public that are directed to consume into labor-intensive sector so the situation of laying off employees doesn’t continue.

Interesting information to be observed in tax incentive is that the validity is until September. If we interpret the validity period of incentives, the government believes that by the end of September conditions will return to normal. Is there any guarantee after September business will return to normal? The answer to this question certainly can’t be answered definitively because it has a high degree of uncertainty. We certainly hope that the condition of this pandemic will end soon and the incentives provided by the government will have direct benefits to the business. I conclude this article with a quote from John Finley who states that "Maturity of mind is the capacity to endure uncertainty".