Why the Global Minimum Tax of 15% is Necessary

At the end of September 2024, tax officials and experts from various countries gathered in Kuta, Bali, to attend the International Tax Forum hosted by Indonesia’s Ministry of Finance’s Fiscal Policy Agency (BKF). The forum focused on strengthening global partnerships to address cross-border tax avoidance, a growing issue as multinational corporations exploit tax loopholes by shifting profits to low-tax jurisdictions.

During the two-day event, a key highlight was Indonesia’s readiness to implement a 15% Global Minimum Tax. In his opening remarks, the Deputy Minister of Finance Thomas Djiwandono, emphasized the country’s commitment to this policy.

The global minimum tax (GMT) of 15%, initiated by the OECD and the G20, aims to curb tax avoidance by multinational corporations. By setting a minimum tax rate across jurisdictions, this policy seeks to ensure that large corporations pay their fair share, regardless of where they operate or report their profits. This prevents companies from shifting profits to low-tax countries or tax havens, a practice that has long eroded tax revenues, particularly in developing countries.

For Indonesia, this is a significant move. The tax will apply to multinational corporations with revenues above EUR 750 million. Many large global companies are expected to fall under this rule. The Indonesian government is currently analyzing how the new rule will interact with existing tax incentives, particularly the tax holiday program, which has offered companies reductions or exemptions from taxes to attract investment. The Ministry of Finance is working on alternative fiscal incentives, as tax holidays will now be capped at 7% instead of the previous zero-tax option.