The Complexity and Implication of Tax Policy on Anticipating Economical Challenge Caused by COVID-19

By​​ Muhammad Raihan Pramudya

(3rd​​ Place for English Category of Legal Review Competition 2020​​ 

held by ALSA LC Unsrat)


Chapter I : Preliminary

  • Background

Major changes are taking place throughout the world. The wealth of a world in which the capital-financial mode of production dominates,​​ appears in the form of collateral letters: trade contracts, employment contracts,​​ financial cooperation contracts. The world economy is currently faced with​​ a​​ force majeure, which is​​ COVID-19. Unlike the usual​​ force majeure, this time we face a universal​​ force majeure, a universal state of exception.

In difficult times like this, the Government need a strong synergy between the community and the Government, both are needed to work together.​​ The COVID-19 pandemic has caused major damage in Indonesian economy, the government is forced to cut state revenue and forced to increase state spendng and financing.​​ During rhis crisis, the Government has responded to the people’s complaint, especially entrepreneurs, regarding the difficulty of maintaining their busnesses due to the pandemic.​​ There are solutions provided to support the people, it includes credit lending, taxation postponement, and tax relief.​​ In response to the pandemic, the Indonesian government has issued a new regulation as the legal protection to overcome national economical challenge, one of them is to provide tax incentives for business and individuals affected by the coronavirus.​​ 

Tax is one the major income source of state revenue for government administrators and the funding to the national development program1. The country’s source of income are based on​​ Anggaran Belanja Negara (APBN)​​ Law and consists of tax income, non-tax income state revenue, and grants. Government’s policy on state revenue and grants are aimed to support fiscal policy to optimalize state revenue. This is aligned with the role of state revenue as the source of funding for government programs and policies.2​​ 

The Government issued Government Regulation in Lieu of Law No. 1 of 2020 regarding State Financial Polcy and Financial System Stability for the Management of the Coronavirus or COVID-19 Pandemic and/or in Facing Threats to the National Economy and/or Financial System Stability (Perppu No.​​ 1/2020).​​ Perppu 1/2020​​ regulates lowers corporate tax rates, imposes tax on electronic transactions by foreign tax subjects, extends tax filing deadlines and empowers the Ministry of Finance to waive import duties in the context of responding to the COVID-19 pandemic and/or in responding to a threat to the economy or national stability.​​ There are​​ at least three regulations regarding tax relief during this pandemic​​ that are based on​​ Perppu​​ 1/2020.

  • Minister of Finance Regulation Number 23/PMK.03/2020 regarding Tax Incentives for Taxpayer Affected by Coronavirus Pandemic

  • Minister of Finance Regulation Number 28/PMK.03/2020 regarding Facilitating Tax for Goods and Services Needed to Handle Corona Virus Disease 2019 Pandemic

  • Minister of Finance Regulation Number 34/PMK.04/2020 regarding Facilitating Customs and Taxes on Import Goods for the Purpose of Handling Corona Virus Disease 2019 Pandemic

Although the regulation is issued in order to respond to COVID-19 pandemic and/or to the threat of economic stability, the adjustments of Corporate Income Tax rate and electronic transactions tax rate are the same as those in the Omnibus law draft that is supposed to be issued this year.​​ Thus, creating waves of disagreement from the people regarding the tax policy regulated by the Government.

This legal review is aimed to review the implcation and the form of regulation regarding the tax policy issued by the Government in response of handling COVID-19 pandemic. This legal review is also aimed to analysis the legal aspect of the tax policy.

  • Problem Formulation

The problem formulation of this legal review consists of two major topics:

  • What are the implication of the tax policy issued in response of handling COVID-19

  • What are the legal basis of the tax policy issued in response of handling COVID-19




Chapter II : Analysis

  • The implication of the tax policy issued​​ by the Government​​ in response of handling COVID-19

Law No. 29 of​​ 2007 regarding General Requirement and Procedures of Tax (UU KUP) defines tax as a mandatory contribution to the country by individuals or legal bodies that are coercive based on the law. Tax is a clear statutory obligations regulated by the constitution. Article 23 (A) of the Constitution stated that “taxes and other levies that are coercive for the purpose of the sstate is regulated by the law”, which also aligned with article 27 verse (1).​​ On the other hand, R.A Seligman defines tax as “a compulsory contribution from the person, to the government to defray the expenses incured in the common interest of all, without reference to special benefit confered”.3

Economically, in response to the Corona Virus Pandemic, the government of Indonesia has issued tax policies to strengthen national economic stability. General Director of Taxation Decree ​​ No. KEP-156/PJ/2020 regarding Tax Policies on the event of Coronavirus Pandemic (KEP-156/2020) sets forth that starting from March 14th, 2020 until April 30th​​ 2020 as​​ force majeur​​ in taxation sector

Government Regulation in Lieu of Law No. 1 of 2020​​ (Perppu 1/2020)​​ regulates tax policies in order to stabilise the national economy affected by COVID-19. There are at least 4​​ main policies that are contained in the regulation

  • Lower Tax Rates for Domestic Companies

Article 5 of Perppu 1/20 reduces tax rates for domestic corporate taxpayers and permanent establishments from 25% to 22% applicable for the 2020 and 2021 tax years, and to 20% starting in the 2022 tax year., and will be reduced to 17%​​ for any domestic taxpayers that meet the following criteria: (i) publicly listed company; (ii) trade at least 40% of their shares through the Indonesia Stock Exchange; and (iii) meet certain other conditions to be further regulated by or based on government regulations.​​ The current​​ tax rate for domestic corporate taxpayers and permanent establishments is 25%, which means this will reduce at least 5% from the current tax rate.


  • Tax on Electronic Transation​​ 

Perppu 1/2020 regultes a tax for Trade Through Electronic System (Perdagangan Melalui Sistem Elektronik​​ or “PMSE”).​​ Artcile 6 of Perppu 1/2020 regulates the type of tax imposed on PMSE.​​ It includes on imposing value added tax (VAT) on intangible taxable goods and/or taxable services originating from outside Indonesia and utilized inside the country as part of PMSE activities. VAT will be imposed​​ subject to the provisions​​ of Law No. 8 of 1983 regarding Value Added Tax for Goods and Services and Sales Tax on Luxury Goods, as lastly amended by Law No. 42 of 2009 (the “VAT Law”).4​​ 

The VAT on PMSE activities is to be collected, deposited and reported by​​ foreign traders, foreign service providers, foreign electronic system trade providers (Foreign PPMSE) and/or domestic electronic system trade providers (Domestic PPMSE), appointed by the Minister of Finance.5​​ Foreign trade companies, foreign service providers, and foreign electornc system trade providers will be treated as a permanent establishment and will be imposed on VAT if the company meets the requirement of the Significant Economic Presence. Article 7 of Perppu 1/2020 sets the requirements of Signifant Economic Presence, which is (i)​​ gross circulation of the group business consolidation​​ increase​​ to a certain amount​​ (ii) the service​​ circulation in Indonesia​​ is​​ up to a certain amount​​ (iii) the​​ number of active users of digital media in Indonesia​​ is up to a certain amount.

Income tax on PMSE is to be paid and reported by foreign trade companies, foreign service provider, and foreign electronic system trade providers. These companies may appoint representatives with domicile of Indonesia to collect, deposit and report Value Added Tax owed or to fulfill their income tax obligations. failure to fulfill their tax obligations will be subject to administrative sanctions as provided by the VAT Law.​​ Since the regulation regarding PMSE is new, additional government regulation is​​ required to set the regulation for other matters related to the above taxes.


  • Extension of Tax Filing Deadlines

Perppu 1/2020​​ also provides extensions for the payment of tax obligations as follows:

  • deadline for taxpayer to file an objection as regulated in Article 25 Verse (3) of Law No. 6 of 1983 regarding​​ General Provisions and Procedures on Tax, as lastly amended by Law No. 16 of 2009 (the “KUP Law”), is extended by six months

  • deadline for filing a request for the return of tax overpayment as regulated in Article 11 Verse (2) of the KUP Law is extended by one month

  • deadline for taxpayers to apply for the return of tax overpayment as regulated in Article 17B Verse (1) of the KUP Law, file an objection letter referred to in Article 26 Verse (1) of the KUP Law, or apply for the reduction or cancellation of administrative sanctions or incorrect tax assessment or the cancellation of examination results, as regulated in Article 36 Verse (1) of the KUP Law, is extended by six months.


  • Facilitates on Relief of Import Duties

Perppu 1/2020 also gives the Minister of Fonance the authorization to provide​​ facilities for customs in form of exemption or relief on import duties, which further regulated on​​ Minister of Finance Regulation No.​​ 34/PMK.04/2020 regarding Facilitating Customs and Taxes on Import Goods for the Purpose of Handling Corona Virus Disease 2019 Pandemic​​ (PMK 34/2020).

PMK 34/2020 sets that ​​ imported goods for the purpose of handling Coronavirus Pandemic will be free of exempt and tax-free, this regulation also facilitates freeVAT and Sales tax on luxury goods, and it will also be free from Article 22 of Income Tax. Furthermore, goods that are facilitated with​​ tax and exempt free policy as refrerred by the regulation above consists of 73 kinds of goods which is regulated in PMK 34/2020. In order to be facilitated, companes have to apply a request to the Minister of Finance through the Head of Customs and Excise Office.

Apart from the tax policies that are regulated in Perppu 1/2020, the Government also provides tax incentive for Income Taxes as referred to in Minister of Finance Regulation No.​​ 23/PMK.03/2020 regarding Tax Incentives for Taxpayer Affected by Coronavirus Pandemic​​ (PMK 23/2020). This policy is a part of chapter II of stimulus package to anticipate the effect of COVID-19 economically. There are 4 incentices provided by the government :

  • Article 21 of Income Tax will be fully borned by the government on income tax of workers up to IDR​​ 200 million on 440 manufacturing industy sectors and/or companies that obtain the facilities of Import Ease Export Destination (Kemudahan Impor Tujuan Ekspor​​ or “KITE”)

  • The exemption of Article 22 of Income Tax on Import of 102 certain sector and/or KITE companies.

  • The reduction of Article 25​​ of Income Tax by 30% on 102 certain sector and/or KITE companies.

  • VAT refund is accelerated (preliminary retursn) for 102 certain sectors and/or KITE companies.

The incentives that are referred to in PMK 23/2020 are valid for 6 months, starting from April until September and will be evaluated periodically.

There are various objectives​​ aimed​​ to be achieved​​ from​​ PMK 23/2020,​​ one of them is maintaining the community​​ purchasing power, providing space for company cash flow, as well as compensation for switching costs (costs related to changes in the country of origin of imports and export destinations). The total tax expenditure for this regulation is at least IDR 22 trillion.

  • The legal basis of tax policy issued​​ by the government in response of COVID-19 pandemic

Based on a comparative study by DDTC Fiscal Research (per March 27th, 2020), government’s policies has already aligned with the global trend. Fast respond is mainly done through deadline extensions of tax administration obligation which is extended between one until six months ahead.6​​ Varous tax relaxation will continue to change along​​ with the dynamics of economic development of each country. There is a correlation between the number of COVID-19​​ positive cases and the tax policies imposed. The higher the case, the more types and magnitude of tax relaxations are given. The government reacts quickly to shifting the tax paradigm, from the revenue function (budgeter) to the regulating function (regulerend). There is a willingness to sacrifice tax revenue in order to stabilise economic condition of the country.​​ 

Per 23rd​​ April, 2020. As much as 20.018 taxpayer has requested for tax incentive, and as much as 14.000 has been approved by the Ministry of Finance7.​​ This helps prevent further economic setbacks caused by the pandemic. On May 4th​​ 2020, the funding body of​​ the House of Representatives​​ (Dewan Perwakilan Rakyat or “DPR”)​​ has agreed on making Perppu 1/2020 as a Law.​​ 

This​​ Government in Lieu Law​​ is effective from the date of promulgation, March 31st, 2020. Nevertheless, according to Law​​ No. 12 of​​ 2001​​ regarding​​ the Formation of Legislation, Perppu 1/2020​​ must still be submitted to the​​ House of Representatives​​ in the following trial (the first​​ meeting​​ session of​​ the​​ House of Representatives​​ after Perppu 1/2020 is set). The submission of a Government in Lieu Law​​ is made in the form of a draft of a bill concerning the stipulation of a​​ Government in Lieu Law​​ into​​ a Law.​​ House of Representatives​​ only gives approval or does not give approval to the​​ Government in Lieu Law. If​​ it​​ has been approved by the House of Representatives, it is stipulated as a law.

If the​​ House of Representatives​​ does not​​ approve, the regulation must be revoked and must be declared invalid. The Govenrment in Lieu Law​​ must be revoked and it must be declared invalid,​​ the House of Representatives​​ or the President shall submit a Bill on the Revocation of the​​ Government in Lieu Law.​​ The Bill on Revocation​​ regulates all the legal consequences of a revocatio. This bill was set to become a Law in the same plenary meeting with the refusal (no approval was given)​​ from the House of Representatives


Chapter III : Closing

  • Conclusion

On taxation sector, Government’s policy has been responsive. What is planned in the Taxation Sector on Omnibus Law is pulled forward in order to immediately impact the taxpayers. Coporate Income Tax rate is reduced to 22% for the 2020 tax year. Taxation of trading activities through the electronic system or PMSE,​​ tax policies on​​ both VAT and Income Tax​​ is also reasonable, both in terms of fairness and long term economic policies utilized during the pandemic.​​ The extension of the application period for tax administration is aligned with supporting large scale social restriction policy or PSBB, which will reduce the risk of transmission of COVID-19.

Tax incentives on Article 21 of Income Tax is also helping the cash flow of both companies and individual, ​​ thus maintaining the purchase power of the community during this pandemic.​​ Furthermore, policies related to customs facilities, especially to the import of goods needed for handling COVID-19 is an important breakthrough in the midst of complicated import regulations and overlapping regulationss, The policy was formulaated with the efforts to orchestrate participatory sectoral policies that would have a positive impact on efforts to handle COVID-19. For example, accelerating the production of ventilators, hospital mattresses, masks, and others.

  • Suggestion

In terms of the implementation of the regulation above. It is only a matter of implementation that requires to be more flexible and adjusted to the government emergency response, with compliance on key performance indicators. Another important thing is the government’s commitment to evaluate the incentives that have been given and will expand to other sectors affected, outside the industries that have been facilitated by the tax policies above. The economy needs also needs to have the capacty to absorb the impact and focus on the most vulnerable people.8​​ Millons of jobs will be lost, with global assessment from the International Labour Organization (ILO), five to 25 million jobs will be eradicated, and the world will lose ​​ $860 billion to $3.4 trillion in labour income9






Brotodiharjo, R. Santoso. 2003.​​ Pengantar Ilmu Hukum Pajak​​ Bandung : Rafika Aditama

Sulatyawati, Dwi. 2018.​​ Hukum Pajak dan Implementasinya Bagi Kesejahteraan Rakyat.
​​  Salam :​​ Jurnal Filsafat dan Budaya Hukum.

Tjip Ismail.​​ Kumpulan Artikel Kuliah Hukum Pajak.


Minister of Finance Regulation Number 23/PMK.03/2020 regarding Tax Incentives for Taxpayer Affected by Coronavirus Pandemic

Minister of Finance Regulation Number 28/PMK.03/2020 regarding Facilitating Tax for Goods and Services Needed to Handle Corona Virus Disease 2019 Pandemic

Minister of Finance Regulation Number 34/PMK.04/2020 regarding Facilitating Customs and Taxes on Import Goods for the Purpose of Handling Corona Virus Disease 2019 Pandemic

Law No. 29 of 2007 regarding General Requirement and Procedures of Tax (UU KUP)

Law No. 12 of 2011 regarding the Formation of Legislation

Government Regulation in Lieu of Law No. 1 of 2020 regarding State Financial Polcy and Financial System Stability for the Management of the Coronavirus or COVID-19 Pandemic and/or in Facing Threats to the National Economy and/or Financial System Stability (GR 1/2020).




​​ Dwi Sulatyawati, 2018,​​ Hukum Pajak dan Implementasinya Bagi Kesejahteraan Rakyat,​​ Salam :​​ Jurnal Filsafat dan Budaya Hukum, page. 120


​​ Tjip Ismail,​​ Kumpulan Artikel Kuliah Hukum Pajak,​​ page. 3


​​ R. Santoso Brotodiharjo,​​ Pengantar Ilmu Hukum Pajak,​​ (Bandung : Rafika Aditama, 2003), page. 3


​​ Michael S.Carl and Charvia Tjhai, 2020,​​ Indonesia and COVID-19 : New Tax Policies Aim to Stimulate Economy,​​ SSEK Legal Consultants, page. 66​​ 


​​ Ibid


​​ Darussalam,​​ Pajak Hadir Lawan DampakCorona,​​ 30th​​ March 2020,​​ (​​ accessed on 11th​​ May 2020


​​ Based on Dashboard of PMK-23 on Application Managerial Dashboard DJP accessed on 8th​​ May 2020


​​ Djalante​​ Review and analysis​​ of current​​ responses to COVID-19​​ in Indonesia :​​ Period of January to March 2020,​​ Progress in Disaster Science, 2020


​​ ILO, 18 March 2020, Almost 25 million jobs could be lost worldwide as a result of CODVID-19, says ILO