The 136-member Organization for Economic Cooperation and Development (OECD) last week approved an overhaul of the world’s tax laws. Two notable changes were the imposition of a global corporate minimum tax on 15 percent for companies with annual revenues of more than $870 million and the requirement that multinational companies pay taxes where they operate, not just where their headquarters are.
US Treasury Secretary Janet Yellen last weekend expressed confidence that Congress would approve an overhaul of the company’s minimum tax rules.
Yellen, in the context of G20 cooperation, again conveyed this when she met dozens of finance ministers, including Indonesian Finance Minister Sri Mulyani on the sidelines of the Annual Meetings of the World Bank Group and IMF International Monetary Fund in Washington DC on Tuesday (12/10). These world finance ministers discussed various things, especially efforts to overcome the diversion of corporate tax payments to countries with lower tax rates in order to reap profits.
Interviewed FLY After attending the series of meetings, Sri Mulyani said this behavior was “unhealthy” because in the end “many countries experienced a reduction or reduction in potential tax revenues due to the shift in corporate profits from one country to another with lower taxes.” It’s also a matter of paying taxes only where the company’s headquarters is, or only where the company markets its products, or in both locations or countries.
Indonesia Lowers Income Tax To 22 Percent
Indonesia, said Sri Mulyani, is currently lowering corporate income tax from 25 percent to 22 percent. Initially this tax will continue to be reduced to 20 percent. However, with the approval of the new Harmonization of Tax Regulations by the DPR last week and the support of a number of other previous regulations, such as the Job Creation Law and Law No. 2 of 2020 concerning State Financial Policy and Financial System Stability for Handling the Corona Virus Pandemic, it was agreed to maintain income tax company to 22 percent.
Indonesia has not followed the OECD which sets the minimum corporate tax to 15 percent because according to Sri Mulyani, Indonesia “has provided a lot of incentive facilities, both in special economic zones, bonded zones, import zones for export purposes whose purpose is to create competitiveness.”
He added that Indonesia has also provided tax allowances in the form of tax incentives (tax incentives) and tax exemption (tax holiday).
“Now if there is an international tax agreement, it can actually neutralize the incentives given because now there are” minimal tax to collect,” he said.
“If a country provides a lower incentive called the minimum, then this company even though it enjoys the incentive – say in the country of investment destination – in the place of origin of the company he will remain in the company.charge or asked to pay taxes at the minimum level earlier. Are we ready? Indonesia must be ready,” said Sri Mulyani.
The Urgency of Perfecting Various Instruments
Indonesia, he added, can prepare itself by making improvements “both in terms of policies and regulations that are simplified and simplified, our bureaucracy is improving, plus infrastructure because the quality of infrastructure will affect the investment climate.”
Sri Mulyani underlined the importance of improvinglevel playing field so that it becomes more attractive because market we are good, the economy is relatively high, people’s purchasing power is increasing, middle income class-nya growing. It’s all an attraction. If in-combine with relatively better infrastructure, a bureaucracy that serves and is not corrupt, regulations that are simple and not complex; then this can to be added competitiveness From Indonesia. So we don’t just rely on taxes alone.”
The Dilemma of Developing Countries
Separately interviewed Kyle Pomerleau, a fellow at the American Enterprise Institute said “there are trade-off (efforts to balance.ed) in developing countries. On the one hand, a minimum corporate tax agreement can help developing countries protect their tax base, if they act (setting a minimum tax) multinational companies may shift profit out of these countries because somehow these rules are not yet established, or they don’t have the capacity to understand tax laws like in developed countries.”
“But on the other hand, there is also a potential negative for developing countries regarding ‘inbound investment’ from developed countries, where American multinational companies for example invest in developing countries, can be negatively affected if countries like America or Germany impose additional taxes on their profits, and this has an impact on investment in those developing countries, ” he explained.
While Didier Jacobs, senior policy advisor at Oxfam said “Ultimately the global minimum tax should reduce abuse to hide taxes and it will benefit all countries. But in the short term, the direct and tangible benefits of this tax will only be felt in some or almost all rich countries.”
“Path to Inclusive Recovery” Becomes Theme of World Bank Group and IMF Meeting
Sri Mulyani along with a number of other financial officials were in the capital city of Washington DC to attend the annual meeting of the World Bank Group and the International Monetary Fund which began Monday (11/10).
“Ending the Pandemic: The Road to Inclusive Recovery” was the big theme of the meeting which was attended by finance ministers, central bank governors, private executives, representatives of civil society organizations and academia to discuss issues of global concern, including economic prospects, poverty alleviation, economic development and the effectiveness of aid schemes. For the first time since the pandemic broke out in March 2020, it was held semi-virtually. [em/hj]