Bond Interest Tax Down to 5%, Make Deposits Unattractive?

Bond Interest Tax Down to 5%, Make Deposits Unattractive?
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The government through the Directorate General of Tax (DGT) of the Ministry of Finance (Ministry of Finance) has cut the Income Tax (PPh) for Bond Interest to 5 percent. Previously, the bond interest tax was 15 percent.
The Director of Counseling, Services, and Public Relations of the Directorate General of Taxes, Hestu Yoga Saksama, in a press release circulated recently explained that the reduction in bond interest income rates were those received by the Collective Investment Contract (KIK).
Then, what type of bond investment does the income tax rate obtained from interest fall? And whether the bond interest tax cuts will make deposits no longer attractive.
Type of Bond Investment with Decreased Tax Rates
Still as explained by the Directorate General of Taxes in his written statement, the type of bonds whose income tax rates from interest rates fall are government bonds and private bonds.
This reduction in income tax rate to 5% is for interest on infrastructure bonds, real estate investment funds, and asset-backed securities recorded at the Financial Services Authority (OJK).
“Provisions on income tax on bond interest apply to debt securities, including state bonds and regional bonds, with a maturity of more than 12 months,” DGT wrote.
The reduction in income tax for bond interest is regulated in Government Regulation (PP) No.55 of 2019 concerning Income Tax on Income in the Form of Bond Interest.
This Rule constitutes the Second Amendment to PP 16 of 2009 concerning Income Tax on Income in the Form of Bond Interest.
The First Amendment to income tax on bond interest is stated in PP No.100 of 2013, which in this regulation the 5% tariff applies only to mutual funds, while collective investment contracts are subject to a higher tariff of 15%.
The hope is that this interest tax cut could attract people to invest in government and private debt.
In the end, it is expected to encourage the development of financial markets in Indonesia and support the development of infrastructure and real estate in the country.
But, if people will flock to investment in bonds because the interest tax goes down, then whether it will reduce the interest to put their funds in deposits?
Well, to answer that, there are several responses from the expert. Here are their views:
1. Investment Interest in Deposits
According to the Economist of the Institute for Development of Economics and Finance (Indef), Eko Listiyanto, as quoted by CNBC Indonesia, stated that the reduction in bond interest tax would reduce people’s interest in investing in deposits.
He reasoned, the current tax on deposit interest is still at 20%. While the bond interest tax is only 5%. And even if bond yields are not as big as deposits, they are still tempting because they pay less taxes to the state than deposits.
2. Deposits Still Attract Although Tax Bond Declines
It is different from the views of PT Bank Central Asia (BCA) Tbk’s President Director, Jahja Setiaatmadja, as reported by CNBC Indonesia that the policy of reducing the bond income tax does not affect people’s interest in investing in deposits.
Jahja believes that the bond interest tax cuts will not take up the investment investment market share. Because both bonds and deposits have different characteristics.
The fundamental difference between the two instruments is if the bond is a long-term investment, while deposits are a short-term investment because there is a tenure of only 3 months.
“People sometimes deposit excess money within three months. Yes, if he buys bonds that do not match his product, he must match his needs, “he said.


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