Procedure for Asset Replacement in Utilizing Tax Allowance

IN the tax allowance regime, the value of fixed assets is the basis for calculating and determining the facilities that can be received by corporate taxpayers. The value of fixed assets that obtain the income tax reduction facility can be replaced.

The replacement of fixed assets can only be done as long as the corporate taxpayer fulfills the requirements and procedures that have been set. Requirements and procedures for replacing fixed assets are regulated in Government Regulation no. 78 of 2019 concerning Income Tax Facilities for Investment in Certain Business Fields and/or in Certain Regions ( PP 78/2019 ).

Then, more detailed rules regarding the replacement of fixed assets are listed in the Minister of Finance Regulation No. 96/PMK.010/2020 concerning Amendments to the Regulation of the Minister of Finance No. 11/PMK.010/2020 concerning the Implementation of Government Regulation No. 78 of 2019 concerning Income Tax Facilities for Investment in Certain Business Fields and/or in Certain Regions ( PMK 96/2020 ).

By Article 16 paragraph (1) of PMK 96/2020, assets that receive a 30% net income reduction facility are prohibited from being used other than to provide facilities or being transferred.

This provision does not apply if the asset is replaced with a new tangible fixed asset before the expiration of the longer period of 6 years from commercial production or before the expiration of the useful life of the asset.

In addition, the said prohibition also applies to intangible assets that obtain accelerated amortization facilities. This prohibition can be excluded if the asset in question is replaced with a new one before the end of the asset’s useful life.

Based on Article 16 paragraph (3) letter an of PMK 96/2020, if the replacement of tangible fixed assets occurs before starting commercial production, the value of tangible fixed assets that are used as the basis for depreciation is the acquisition value of new tangible fixed assets.

The depreciation method is adjusted to the provisions of Article 11 of Law no. 7 of 1983 concerning Income Tax stated in Law no. 7 of 2021 concerning Harmonization of Tax Regulations ( PPh Law ). There are 2 depreciation methods listed in the quo provisions, namely the straight-line method and the double-declining balance method.

Furthermore, if the replacement of tangible fixed assets occurs after the commencement of commercial production, the value of the tangible fixed assets on which the 30% income tax reduction facility is based is lower than the asset value between the replaced and replaced assets. These provisions can be found in Article 16 paragraph (3) letter b of PMK 96/2020.

If the value of the substitute fixed assets is lower than the value of the replaced assets, the 30% income tax reduction facility can be utilized until the expiration of the remaining utilization period by using the value of the substitute tangible fixed assets.

However, if the replacement asset value is higher than the replaced tangible fixed asset value, the 30% income tax reduction facility can be utilized until the end of the remaining utilization period with the replaced tangible fixed asset value.

For information, the value of tangible fixed assets that are used as the basis for depreciation is the acquisition value of new tangible fixed assets. In addition, the depreciation method used must comply with the provisions of the Income Tax Law.

For administrative procedures for asset replacement, taxpayers are required to submit a written statement to the Directorate General of Taxes before replacing tangible fixed assets. However, substitute fixed assets cannot be given an accelerated depreciation facility for fixed assets as stated in Article 16 paragraph (5) of PMK 96/2020.

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