inspired ABCSystem ManagingTaxHoliday Thewrongideasabout Togetherwegrow HadoriSugiartoAdi&Rekan AmemberofHLBInternational

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1 inspired Togetherwegrow ManagingTaxHoliday Thewrongideasabout ABCSystem HadoriSugiartoAdi&Rekan AmemberofHLBInternational Vol.02 September2015

2 Table of contents 1 Foreword 2 Managing Tax Holiday 3 The wrong ideas about ABC System 5 Key contacts 0

3 Foreword Welcome to the second issue of Inspired! In this edition, we would like to present the issues related to the latest tax regulations regarding revision of tax holiday in Indonesia. Also, we would like to discuss about the Activitity Based Costing (ABC) System that most of companies have improperly implemented. Since we want the journal to be as relevant as possible to your business needs, we look forward to hearing your inputs on each issue. Contact details are furnished at the last part of this journal. Adi Wirawan Senior Partner September

4 Managing Tax Holiday Introduction Due to the economic downturn in Indonesia, recently, the Government tries to increase the number of investments in Indonesia. The government offers various ways to attract investors. One of them is by providing facilities or tax incentives, i.e., tax reduction within a specified period. By introducing these incentives, the Government expects more investors to come and help improve the growth of Indonesia s economy. What is this kind of tax reduction? The Government published the Ministry of Finance (MoF) Regulation ( Peraturan Menteri Keuangan or PMK ) No. 159/PMK.010/2015 related to the Provision for Corporate Income Tax Reduction Facility, or known as Tax Holiday to revise PMK No. 192/PMK.011/2014. This regulation is effective on August 16, 2015 and the changes are as follows: First, the format of the tax facility provision is no longer in the kind of tax exemption up to 0%, but in the form of a tax reduction. The reduction of corporate income tax is given at most 100% and at minimum of 10% of the amount of corporate income tax payable. Second, the maximum tenor (term) of the previous tax facility provided was 10 years. But now, it is extended up to years. Third, the recipient sectors of the previous tax holiday are available only for 5 industries. Now, this tax holiday is dedicated to 9 industries, including: 1. Upstream metal industry; 2. Petroleum refining industry; 3. Organic basic chemicals industry derived from petroleum and natural gas; 4. Machinery industry that produces industrial machine; 5. Telecommunication, information, and communication industry; Additional sectors: 6. Processing industry based on agriculture, forestry, and fisheries products, e.g.: food crops, plantations, forestry, fisheries and livestock; 7. Marine transportation industry, e.g.: shipbuilding; 8. Processing industry which is a major industry in the Special Economic Zone (SEZ); and/or 9. Economic infrastructure other than those using the scheme of the Government and Enterprises Cooperation ( Kerjasama Pemerintah dan Badan Usaha or KPBU ), e.g : toll roads and power plants. PMK revision is ideal to find and increase the number of investments in Indonesia. The tax holiday is an incentive in the form of reduction of corporate income tax 2

5 ( Pajak Penghasilan badan or PPh ) for a minimum of 5 years from the commercial operations in compliance with the investment of Rp 1 trillion, specially for telecommunication, information, and communication industry, and meet the requirement of introducing high technology with minimum value of Rp 500 billion. For telecommunication, information, and communication industry which invest Rp 500 billion to less than Rp 1 trillion, will be given the reduction of corporate income tax (PPh) at a maximum of 50%. On the contrary, if the investment is Rp 1 trillion or more, a reduction of corporate income tax up to 100% will be granted. Investors must apply this tax facility to acquire license from the Indonesia Investment Coordinating Board ( Badan Koordinasi Penanaman Modal or BKPM ). BKPM will review the application and propose to MoF for further verification. The MoF will appoint the Verification Committee to check and clarify whether the application is acceptable. The MoF provides the opportunity for investors to apply this tax facility within a period of 3 years since the effective date of the regulation. The Wrong Ideas about ABC System Activity Based Costing (ABC) System has been around for the past three decades, and yet, many people still cannot get a good grasp about this concept. The lack of understanding results to lot of mistaken beliefs about the ABC system. This article aims to address the most common misconceptions of ABC System in accordance with our experiences. Clarifications The first fallacy is the notion that the ABC System represents a system to record, classify, summarize, present, and interpret cost information. In fact, the ABC System is a system to satisfy the need of information for decision making either for strategic or daily operations level. For example, information to makeor-buy, special order costing, etc. The next inaccuracy is the thought that the ABC System is only applicable to manufacturing companies. The truth is that the ABC System is known to be implemented in wide range of industries in public and non-profit organizations. Every company, either manufacturing or non-manufacturing, which is implementing the ABC System will obtain better understanding in their cost stucture and will be able to determine better product or service price. Considering that the ABC System s only focus in the cost of production is a mistake. In reality, the ABC System includes all costs arising from company activities. Every activity done by an entity will consume resources and accumulate cost for the entity. It is also erroneous to say that the goal of the ABC System is the calculation of product cost and cost control. The ABC System s goal is for long-term cost reduction. 3

6 Next misconception is that the ABC System only generates information for top management. The ABC System is capable to generate information for daily operations which is useful for all personnel. Many people also think that the ABC System could be done manually. As wise men say, just because you could doesn t mean you should. The ABC System will only provide optimal results if supported by proper information technology. The final misconception is that the ABC System is the main responsibility of the accounting department. As stated above, the ABC System is also providing information for daily operations. It means that the ABC System is also the responsibility for all personnel especially that from operations. In conclusion, all personnel of the entity must have better understanding about the ABC System. Otherwise, the implementation of the ABC System will be at stake. Top management needs to educate their subordinates about the importance and benefits of the ABC System in their daily work. Why did the ABC System fail? The ABC System is renowned for its superiority from traditional costing system, and yet, not many entities implement it in their business. The reason is most of the time top management finds it difficult to integrate the ABC System into the entity. To some who have tried, only a few succeeded. Thus, it discourages heavily many potential users. From our years of experiences, there are various reasons why entities failed to properly implement the ABC System: First of all, management does not possess sufficient knowledge, skills, and commitment to execute the ABC System project. Second, the entity does not have appropriate cost management model. Finally, the entity does not have suitable software which support the ABC System. To ensure the successful implementation of the ABC System, the entity needs total devotion and commitment. In the beginning, the ABC System requires plenty of time and resources. It also needs adequate knowledge and skills to design the system, which many entity s executive lack of. It is highly recommended to consult the experts before trying to implement the ABC System on your own. Location: Kebun Raya Bali 4

7 Key contacts Should you need further clarification on the information included in this issue, or would require any assistance in the implementation of the new accounting standards, taxation, regulation, and any other inquiries on our advisory services, kindly send us an at or call us at Adi Wirawan Senior Partner Yulianti Sugiarta Partner Wahyu Wibowo Partner Wijanarko Associate Partner Riza Manalo Paguio Senior Technical Advisor Contributors: Wahyu Wibowo Intan Karima Savitri Rahayu Putra Pangihutan Cover Photo: Aang Tri Anggono Cover Photo Location: Ranu Kumbolo, East Java HLB International is a leading global network of independent professional accounting firms and business advisers. We are present in 130 countries worldwide, with our member firms providing a comprehensive array of audit & accounting, tax and advisory services to a broad range of clients of all industry sectors. A member of the International Federation of Accountants Forum of Firms, HLB International is committed to the highest quality standards in financial reporting and auditing practices with all our members meeting specific quality criteria both nationally and internationally. With member firms well established in their markets, HLB International offers an ideal combination of local expertise and international skills. Our member firms support you as you grow regionally and globally, ensuring the same partnerled high-quality and personalised service wherever you operate. About Hadori Sugiarto Adi & Rekan Hadori & Rekan is a registered public accounting and business advisers firm. We have been established since 1973, with offices located in Jakarta, Surabaya, Yogyakarta and Semarang. The firm represents a group of specialist providing business advices and services to a wide range of business organizations, including private, public, stateowned enterprises and not-for-profit organizations. Since 1988, Hadori & Rekan joined HLB International, a worldwide accounting firms and business advisers. Having this membership each member firm has the right to use HLB in their name to present a blend of international and local name. It emphasizes the strength of both the international organization and the local firm whilst, at the same time, demonstrating the close bond between the two. Accordingly, the brand name Hadori & Rekan change to Hadori & Rekan (currently Hadori Sugiarto Adi & Rekan). Such change has been approved by the Ministry of Finance. As a member of HLB International, Hadori Sugiarto Adi & Rekan is part of a worldwide network of respected public accounting and business advisory firms in 130 countries, with 1,900 partners and 17,000 staffs in 600 offices worldwide. Rank in the top 12 accounting and business advisory groups. This publication contains general information only and is not intended to be comprehensive or to provide specific accounting, business, financial, investment, legal, tax or other professional advice or services. This publication is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business. Before making any decision or taking any action that may affect you or your business, you should consult a qualified professional advisor. Whilst every effort has been made to ensure the accuracy of the information contained in this publication, this cannot be guaranteed, and neither HLB International nor any related entity shall have any liability to any person or entity that relies on the information contained in this publication. Any such reliance is solely at the user s risk Hadori Sugiarto Adi & Rekan 5