The Ministry Of Finance Will Perfect Tax Policy To Face Two Global Challenges

Taxation (Photo: Unsplash)

JAKARTA - The Ministry of Finance (Kemenkeu) revealed that the international tax system is currently facing two main challenges, namely economic digitization and fairly aggressive tax tariff competition.

Deputy Minister of Finance II, Thomas Djiwandono said that the rapid development of digital technology makes it easier for multinational companies to operate across countries and allows them to earn significant income without having to physically attend in market countries.

"In addition to economic digitization, international tax challenges also occur with tax tariff competitions which then encourage the practice of Base Erosion and Profit Shifting (BEPS)," he said at the International Tax Forum (ITF), Tuesday, September 24.

To overcome this, Thomas conveyed that countries that are members of the Inclusive Framework (IF) on BEPS agreed on the Pilar 2 solution, which consists of the provisions of the Global Minimum Tax and the Subject to Tax Rules (STTR).

Meanwhile, Global Minimum Taxes have been implemented in more than 40 countries in the world, such as: Vietnam, Australia, Japan. Korea, the European Union, and several other countries. Indonesia also plans to implement the provisions of the Global Minimum Tax in domestic provisions.

Meanwhile, regarding STTR, Thomas said that Indonesia together with several other countries or jurisdictions had signed a Multilateral Instrument (MLI) STTR on September 19, 2024.

According to Thomas, this gives a signal that countries in the world are assessing the importance of the Pilar 2 solution.

The application of Pillar 2 is no longer an option for Indonesia. If Indonesia does not apply pillar 2, then the potential for taxes will be taken by other countries. This is the same as subsidizing other countries," he said.

Therefore, Thomas conveyed that the alignment of domestic tax policies with an international tax framework plays a very important role in creating a business climate as well as fairer and more transparent investment in global economic cooperation.

In addition, Thomas said a good investment climate and healthy fiscals certainly play an important role in supporting a sustainable national development agenda.

Meanwhile, Head of the Fiscal Policy Agency of the Ministry of Finance Febrio Kacaribu said that currently, the world economy is still facing complex challenges after the COVID-19 pandemic which is influenced by the geopolitical crisis, climate change, and demographic dynamics of the global community.

According to Febrio, to maintain fiscal sustainability in achieving the national development target prudently, each country needs to understand the optimal potential of its tax fiscal space, by taking into account the need for support for the economy in the form of tax incentives.

"Several countries, including Indonesia, document the provision of tax incentives and publish them in the form of tax expenditure reports," he said.

Febrio said that through collaborative efforts, policies recommendations that are robust and sustainable can be developed to navigate the complexity of issues in international taxation and are able to encourage Indonesia to lead to a more fair and efficient global tax system.