State Treasury Bonds - Discounts and Income Tax

The government wants to drive additional growth in the market for Treasury Bonds. A review of the current regulatory framework has led the government to determine that Government Regulation No. 11 of 2006 is no longer fit for this purpose and needs to be repealed and replaced. The government has therefore issued Regulation No. 27 of 2008 for this purpose.

The Regulation states that on certain income, in this case the discounts on State Treasury Bonds, that the tax payer is obligated to pay taxes on the tax collected or withheld is to be characterized as final.

The income tax to be paid is 20% for companies and 20% for foreigners. However, the 20% for foreigners can be any applicable and agreed tariff where there are double taxation treaties in place between Indonesia and the country of residence of the tax payer.

The tax is to be withheld or collected by the emitter / issuer in the primary market and by the broker in the secondary market.

There are exceptions for some that would normally have to pay the requisite income tax on the discounts. These exceptions apply to banks established in Indonesia or branches of foreign banks resident in Indonesia, pension funds that have been approved by the Minister of Finance, and Mutual Funds registered at the Capital Markets and Financial Institutions Supervisory Agency (Bapepam-LK) for the first five years of the funds existence.

Procedures relating to the collection of the tax are to be issued by the Minister of Finance as required.

Any income tax already paid and collected under Government Regulation No. 11 of 2006 will not be re-levied under this new Regulation.

The Regulation has been in force since 4 April 2008.