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Tax Allowance in Indonesia

Tax Allowance is a form of incentive offered to investors investing or expanding their business in certain fields or in certain areas. The licensing process and the provision of investment facilities carried out at the Investment Coordinating Board (BKPM) are expected to increase and accelerate foreign investment in Indonesia.

Tax allowance is regulated by Law No. 17 of 2000 regarding Income Tax (Income Tax Law). The purpose of the tax allowance is to increase direct investment activities, either through foreign or domestic investment. The provision of this tax allowance aims to encourage economic growth, equitable development, and acceleration in certain business fields.

A. Advantages of Tax Allowance

Based on Article 31A of the Income Tax Law, taxpayers who invest in certain business fields and/or certain regions may be given tax facilities in the form of a maximum net income reduction of 30%. The income reduction is calculated from the amount of investment made by the corporate taxpayer.

B. Tax Allowance Requirements

The tax allowance facility can only be given to domestic corporate taxpayers who invest in their main business activities, both new investment and expansion of existing businesses, this is stated in Article 2 paragraph (1) Government Regulation No. 78 of 2019 concerning Income Tax Facilities for Investment in Certain Business Fields (GR 78/2019).

GR 78/2019 also explains that certain business fields and certain regions are determined by considering the development and priorities of its sector in order to grow a comprehensive economic ecosystem.

Furthermore, Article 2 paragraph (3) of PP 78/2019 stipulates that domestic corporate taxpayers with investment activities can get a tax allowance facility when one of the 3 criteria is met.

  1. Has a high investment value or for export.
  2. Has a large workforce absorption.
  3. Has a high domestic substance.

There are provisions regarding the investment value, the amount of labor absorption, and also the domestic substance as stipulated in the Minister of Industry Regulation No. 47 of 2019. The value of investment, employment, as well as domestic substance content are determined differently according to the line of business and the Indonesian Standard Classification of Business Fields (KBLI).

Tax Allowance

Read more: Tax Holiday

C. Priority Business Field

Based on Article 4 of Presidential Regulation No. 10/2021, there are 245 KBLI which are included in the scope of priority business fields, the coverage of priority business fields is divided into the following categories:

  1. national strategic programs/projects,
  2. capital intensive,
  3. labor intensive,
  4. high technology,
  5. pioneer industry,
  6. export-oriented, and/or
  7. oriented in research, development, and innovation activities

Tax Allowance is a government policy that is very useful for accelerating the development of business entities in Indonesia. This policy provides convenience for business actors to run their business. Therefore, business actors must know and carefully use the investment facilities provided by the Government of Indonesia.


ET Consultant is a Business Consultant and Legal Consultant Expert that provides support for local and multinational clients to start and manage their business operations in Indonesia. ET Consultant specializes in Business Incorporation, Licensing & Legal, Accounting & Taxes, Immigration, and Advisory Services.

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Jakarta Selatan, 12940 Indonesia.
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An Indonesian group advisory or consulting firm that provides Business and Legal Consultant for local and multinational client support for start-ups and managing business operations in Indonesia. ET Consultant provides a solid legal foundation with experience, reasonable cost, reliable corporate & business legal services with excellence, integrity, and trusted services for ease of doing business in Indonesia.

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