Page 5 - Newsletter (Realization of 2019 State Budget & Indonesia’s Position in MLI)

DDTC Newsletter Vol.03 | No.01 I January 2020 Page 5 of 7

Realization of 2019 State Budget & Indonesia's
Position in MLI

difficulties in estimating the patterns of tax revenue and Tax Treaty Related Measures To Prevent Base Erosion
affects the revenue projections. Not only in 2019, DDTC and Profit Shifting (Presidential Reg. No.77 / 2019)
Fiscal Research has also established revenue projections
consecutively from 2013 to 2019. During this period, at The Indonesian government signed the convention on 7
least two DDTC Fiscal Research’s projections are aligned June 2017 in Paris, France. The Indonesian Government,
with the realization of tax revenue, namely projections has thus, finally ratified the instrument as a basis
in 2016 and 2018. DDTC Fiscal Research’s tax revenue for domestic law hence the articles adopted in the
convention can be applied to the tax treaty (persetujuan
projections and the difference in accuracy with tax
revenue realization from 2013 to 2018 can be seen in penghindaran pajak berganda/P3B) covered in the
Table 4. reservations.
In contrast, none of the realization of the basic Furthermore, the Presidential Regulation which was
macroeconomic assumptions was precise against the enacted and entered into force on 12 November 2019
2019 State Budget targets. Economic growth is estimated contains an attachment of the copy of the original text of
to be lower than the assumption of 5.3%. The same
the convention in French and English with reservations.
applies to inflation as well, of which the realization was
Therefore, in the event of any difference in interpretation
also lower. Additionally, the rupiah exchange rate was
between the translated manuscript and the original
recorded to be stronger than the assumption in the 2019
manuscript, the original convention text in English and
State Budget. Oil price was lower than the target. The
French applies.
breakdown of basic macro assumptions can be seen in
Table 5.
In further detail, the attachment of the Presidential
Regulation contains a list of 47 countries whose tax
Table 5 – Realization of 2019 Macroeconomic treaties are included in this convention. These countries
Basic Assumptions
comprise Australia, Brunei Darussalam, Canada, China,
France, India, Belgium, Croatia, and Russia. In addition,
Basic Assumption 2019 State Realization the attachment of Presidential Reg. No.77/2019 outlines
Budget
Indonesia’s position in MLI.
Economic Growth (%)
5.3 5.05
(the government’s estimation) MLI itself is a simultaneous modification of tax treaties
without a bilateral negotiation process. The tax treaties
Inflation (%, yoy) 3.5 2.72
to be modified through MLI are referred to as the Covered
Exchange Rate (%, year-on-year) 15,000 14,146
Tax Agreement (CTA) which covers 39 tax treaties out
of a total of 70 tax treaties in Indonesia per December
Government Treasury Bill Interest
5.3 5.6
Rate (%) 2019. Based on the MLI Convention signed in 2017,
modification is only possible if both parties take the same
Oil Price (US$/barrel) 70 62
position (match) to adopt substantive clauses in MLI.
Oil Lifting (thousand barrel/
day) (temporary realization as of 775 741 Further, Presidential Reg. No. 77/2019 set forths two
November)
main clauses in MLI, namely reservation and notification.
Gas Lifting (thousand barrel/day) 70 62 Reservation is an optional clause in which one party may
(realization as of November)
decide not to adopt the provisions partially or wholly
Source: Source: Ministry of Finance Press Conference regarding the refer to it hence affecting the subsequent modification
2019 State Budget Realization. process.
In contrast, notification is an identification and
Indonesia’s Position in Multilateral information clause. This clause is related to the selection
Instrument (MLI) of Indonesia’s position on the optional provisions or in the
form of an explanation in the event of any modification
As part of the efforts to prevent base erosion and to the currently applicable tax treaties. A summary of
profit shifting (BEPS) in a simultaneous, synchronized, Indonesia’s position to be deposited with the OECD
and efficient manner, the Indonesian government has Secretariat based on this Presidential Regulation can be
officially ratified the multilateral instrument on tax treaty seen in Table 1. Furthermore, related to the application
(MLI). This ratification was marked by the issuance of MLI, the DGT is planned to provide synthesized text for
of Presidential Regulation No. 77 of 2019 concerning every impacted tax treaty after matching the provisions.
Ratification of the Multilateral Convention To Implement