Jakarta. Indonesia is planning to prepare the necessary regulations after Jakarta inked a multilateral treaty aimed at endorsing fairer tax practices.

Indonesia --alongside dozens of other countries-- signed the so-called Subject to Tax Rule Multilateral Instrument (STTR MLLI) document last week. The pact is expected to pave the way for a fairer global tax system. However, Indonesia still has to undergo the ratification process to make the multilateral tax treaty valid in Indonesia. 

Febrio Kacaribu, a senior official at the Finance Ministry, said Monday that Indonesia would have to come up with the necessary regulations first. The country will then report back to the Organization of Cooperation and Development (OECD) -- a rich country club that is also the depositary to the multilateral instrument. 

“So we will need to prepare the presidential decree. So after that, the Finance Ministry’s Tax Directorate General will make the technical regulations,” Febrio told the press in Jakarta. 

“We will then report to the OECD. After that, the [STTR MLI] will come into effect,” Febrio said. 

Indonesia Joins 42 Nations in Global Pact for Fairer Tax Practices

Febrio, however, did not give a timeframe on when the government would issue these implementing regulations. 

The STTR allows countries to impose an additional tax of up to 9 percent on specific income--such as royalties, interest, and certain services--paid to partner countries with a double taxation agreement (DTA) that charge less than 9 percent. The STTR applies only to intragroup payments exceeding €1 million (around $1.1 million) in a tax year. For other types of income, the payment must exceed the cost plus an 8.5 percent margin. The document will affect 29 of Indonesia’s DTAs with partner countries, including the United Arab Emirates (UAE) and Singapore. 

Indonesia is hoping that its signature of the STTR MLI will give the country some bonus points in its pursuit of an OECD membership. Indonesia is already a candidate member of the rich country club and wants to secure a membership by 2027 as part of its strategy to become an advanced economy. The accession process includes technical reviews across almost every area of public policy. During his Jakarta visit a few months ago, OECD Secretary-General Mathias Cormann said that it would be best for Indonesia to not rush on its candidature and focus more on making sure that it gets the reforms right to meet the group’s standards.