COVID-19 OUTBREAK: ROLE OF GOVERNMENT’S POLICY PACKAGES FOR INDUSTRIES SECTOR

Coronavirus outbreak has brought extraordinary impacts not only to healthcare sector but also economic and wider sectors. The adoption of Large-Scale Social Restrictions policy (“PSBB”) indirectly limits business activities. Further, Minister of Health Regulation Number 9 of 2020 on Guidelines on Large-Scale Social Restriction for the acceleration of Corona Virus 2019 Mitigation (“PERMENKES 9/2020”) even prohibited some business activities from operating during PSBB. Nevertheless, the Government of the Republic of Indonesia (the “GoI”) has issued several policy packages to facilitate business players in continuing their activities. Below are policy packages issued by the GoI aimed for Industrial Sector:

A. Licensing easing measures

IOMKI License

The Government has officially issued a specific license for industrial sector, namely Operational and Mobility of Industrial Activities License (Izin Operasional dan Mobilitas Kegiatan Industri or “IOMKI”), through issuance of Circular Letter Number 7 of 2020 on Guidelines to Obtain a License in Industrial Activity during COVID-19 Pandemic (“SE 7/2020”) on 9 April 2020.

IOMKI policy is already in line with PERMENKES 9/2020, where industrial business activities are exempted from the implementation of PSBB.[1] However, in practice, certain challenges arise due to conflicting regulations between ministerial-level regulations and implementing regulations at the governor-level regarding PSBB implementation in each region. For example, in DKI Jakarta, Governor Regulation Number 33 of 2020 (“PERGUB 33/2020”) stipulates that exceptions to PSBB are granted to business players in strategic industrial sectors. According to Law Number 3 of 2014 on Industry, the strategic industry is defined as industries that are important for the country and affect the lives of many people.[2] It is clear that from such provision, only certain industries categorized as strategic industries are allowed to continue their business operations.

Meanwhile, PERMENKES 9/2020 and SE 7/2020 regulate that all of the industrial companies and/or industrial estate companies are allowed to continue their business operation during PSBB implementation as long as they have obtained IOMKI – and such IOMKI is issued by the GoI to all industrial companies (both strategic and non-strategic).[3]

IOMKI Supervision

The GoI also actively supervises industrial companies which operate during the implementation of PSBB. The Minister of Industry has enacted a Letter of Minister of Industry Number S/336/M-IND/IND/IV/2020 dated 17 April 2020, which gives an authority for Governor and Regent/Mayor to impose sanctions to industrial companies in their respective regions, if there are alleged violations on the application of COVID-19 prevention protocol as stipulated in the Minister of Industry’s Circular Letter Number 4 of 2020 on Standard Operational Procedure for Factories during the Corona Virus 2019 Pandemic (COVID-19 protocol). Such sanctions take forms of 1) guidance; 2) warning letter; and 3) temporary business suspension. If industrial companies and/or industrial estate companies continue to violate COVID-19 protocol, the Governor and Regent/Mayor may propose to the Minister of Industry to revoke IOMKI for the respective company.

Industrial companies with IOMKI is also subject to additional obligations as stipulated under the Minister of Industry Circular Letter Number 8 of 2020 (“SE 8/2020”), which include: 1) Having the Operating Standard Procedures for handling COVID-19; 2) Ensuring the COVID-19 protocol has been implemented; 3) Reporting the implementation of IOMKI every weekend through SIINas; 4) Checking the health of workers who are potentially exposed to COVID-19; and 5) Sterilizing the work area that has the potential to become the place of virus transmission. If a company do not fulfill reporting obligations for 3 (three) times of the reporting period, then the GoI might revoke its IOMKI.

Concerns remain on whether companies who directly support the activities of IOMKI holder can continue their operation during PSBB, since it has not yet regulated in SE 7/2020 and PERGUB 33/2020. This is crucial considering that some industrial companies depend on the supplies from other companies. If companies that directly support IOMKI holder are not allowed to operate, there is a high possibility that it may hamper the operation of IOMKI holder.

B. Taxation easing measures

The GoI has enacted several regulations that provide tax relaxations to business players in several sectors, including the industrial sector. The Minister of Finance has enacted Minister of Finance Regulation Number 23/PMK.03/2020 on Tax Incentives for Industries who are affected by COVID-19 (“PMK 23/2020”). In essence, PMK 23/2020 provides that the GoI will cover income Tax due under article 21 (PPH 21) and Import Tax due under article 22 (PPH 22) of the Income Tax Act. Further, PMK 23/2020 also provides 30% (thirty percent) cut from the tax installment that is expected to be due and payable under Article 25 (PPH 25) of the Indonesia Income Tax Act. All of these incentives are applied to businesses that satisfy particular criteria provided by PMK 23/2020.

However, PMK 23/2020 has been replaced by the Minister of Finance regulation number 44/PMK.03/2020 (“PMK 44/2020”), which provide similar tax incentives with broader range criteria and covering more business sectors. PMK 44/2020 extends the applicability of PPH 21, PPH 22, and PPH 25 incentive to a total of 1.062 and 431 business sectors, compared to PMK 23/2020, which only covers 440 and 102 business sectors, respectively. PMK 44/2020 also provides new incentives, whereas now the GoI also covers the final income tax due to particular businesses with an annual gross income not exceeding Rp4.800.000.000.

Second, the Minister of Finance has introduced Minister of Finance Regulation Number 28/PMK.03/2020 (“PMK 28/2020”) that provides 2 (two) tax incentives, which are: 1) Exemption for taxable employers from paying value-added taxes for particular products and services;[4] and 2) Exemption for importers from paying import tax due under article 22 for particular products and services. Those tax incentives are only applied for products and services that are required to contend COVID-19 pandemic.[5] Products that are exempted from value-added tax and import tax according to this regulation are:[6] 1) Drugs; 2) Vaccines; 3) Lab equipment; 4) Detectors; 5) Safety equipment; 6) Patient care equipment; and 7) Other supporting equipment required to combat COVID-19. Services that are exempted from value-added tax and import tax according to this regulation are:[7] 1) Construction; 2) Consultation, technical, and management services; 3) Rental service; and/or 4) Other supporting services required to combat COVID-19.

Lastly, the Minister of Finance has enacted Regulation Number 31/PMK.04/2020 (“PMK 31/2020”) that provides additional incentives for businesses located in bonded zone and import for export businesses. The incentives cover, among others: 1) Import tax exemption and import duty suspension for businesses operated in the bonded zone, which applies to particular products (such as disinfection, mask, safety equipment, body thermometer, and other equipment related to the COVID-19) imported or stored in the bonded zone;[8] and 2) Value-added tax exemption on import for export products.[9]

C. Subsidies on Credit Interest

The GoI has officially announced that it will grant a subsidy on credit interest up to 6% (six percent) for six months, for businesses that are affected by the COVID-19 outbreak. The official statement was made through a Coordinating Ministry of Economic Affairs press release number HM.4.6/52/SET.M/EKON.2.3/04/2020 on 29 April 2020. The GoI announced that it would cover the payment for the credit interest of the people's business loans & loans ranging from Rp10.000.000 to Rp500.000.000 for six months period, with the following mechanism:

• for the first three months, the GoI will cover up to 6% (six percent) of the interest due; and

• for the remaining three months, the GoI will cover up to 3% (three percent) of the interest due

Further, the GoI will also subsidize the credit interest for loans with a value above Rp 500.000.000 to Rp 10.000.000.000 with the following mechanism:

• for the first three months, the GoI will cover up to 3% (three percent) of the interest due; and

• for the remaining three months, the GoI will cover up to 2% (two percent) of the interest due