JAKARTA. Good news for the government bonds investors. The govt will remove the Income Tax (VAT) on the yield or profit of Government Securities.
The Ministry of Finance is targeting the elimination of income tax will take into effect next year.
The tax exemption is expected to smooth government debt strategy next year, and attract foreign capital inflow. The policy was designed after the Supreme Audit Agency (BPK) found an Rp 4.71 trillion of government-borne tax income on government financial report in 2015.
Under the tax treaty, government-borne tax income on foreigner owned state bond has to be lesser than its normal rate (20%). "Tax treaty applies to government securities owned by foreign investors," said Suahasil Nazara, Head of Fiscal Policy Office (5/9).
Therefore, the government promised to immediately complete discussion of the abolition of income tax on government bonds. The tariff abolition will be proposed to be included in the revised Law No.36/2008 on Income Tax (Pph).
However, Suahasil said that Ministry of Finance have conducted deep analysis before making the decision. Although it was suggested by BPK, the government should minimize the effects of the policy to custodians, beneficiaries, and foreign ownership in government bonds.
Director General of Financing and Risk Management Robert Pakpahan said that the income tax exemption tax will increase the share of foreigners in government bonds that now have reached 38.78%. Whereas, the government wants to increase domestic ownership by providing various Government Securities (SBN) retail.
Investment Director of PT Sucorinvest Asset Management Jemmy Paul Wawointana said that the policy will hit the mutual funds industry. Because, the investors will prefer to directly buy government bonds rather than through multi funds. Jemmy suggested government to reduce SBN tax to 5%-10% instead of removing the tax. However, he agreed on government policy to remove tax on government bond's interest that becomes basic assets of mutual funds.
