Indonesian govt sets four pillars for effective tax incentives

Jakarta (ANTARA) - Indonesia's Finance Ministry has outlined four principles for designing effective tax incentives: international alignment; strategic relevance; timely, targeted and temporary measures; and continuous evaluation.

"We believe there are at least four things that can serve as the main pillars of good tax incentive policy," Finance Ministry special staffer for taxation Yon Arsal said at the International Tax Conference 2026 on Wednesday.

On the first pillar, Arsal emphasized the importance of aligning tax incentives with developments in global tax regulations, including the Global Minimum Tax (GMT).

The GMT, which sets a minimum effective tax rate of 15 percent, affects the use of traditional tax holiday and tax allowance schemes under certain conditions.

"There are several alternative mechanisms more suited to current GMT rules, such as cash grants, tax credits and other schemes specifically designed to fit the needs," Arsal said.

On the second pillar, he stressed the importance of aligning tax incentives with changes in business and economic structures, including the growth of the digital economy.

He noted that Indonesia still relies heavily on traditional incentive schemes, such as tax holidays for the manufacturing sector.

Meanwhile, countries such as Malaysia, Thailand and Vietnam are increasingly directing incentives toward digital, electronics and renewable energy sectors.

Therefore, Indonesia needs to anticipate changes in industrial structures so tax incentive policies remain aligned with future economic developments, he said.

The third pillar emphasizes that incentives must be timely, well-targeted and time-bound.

Arsal said the National Economic Recovery (PEN) program during the COVID-19 pandemic was one example of this principle in practice.

At the time, the government provided various incentives to support micro, small and medium-sized enterprises (MSMEs), helping them sustain their businesses and purchasing power, along with other follow-up measures.

The fourth pillar emphasizes the importance of continuously evaluating tax incentives.

"First, ensuring incentives are given in a timely manner, have clear time limits and are properly targeted. Second, continuously improving and evaluating all incentives that have been given," he said.

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Translator: Rizka, Kenzu
Editor: Rahmad Nasution
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