GAAR and Fiscal Balance: Securing Tax Revenue, Boosting

Indonesia has incorporated General Anti-Avoidance Rules (GAAR) into the Tax Amnesty Law and Government Regulation No. 55/2022 to address rising cross‑border tax avoidance. The rules aim to close loopholes that multinational firms use to shift profits to low‑tax jurisdictions.

GAAR is a general anti‑avoidance provision that prohibits transactions lacking genuine economic substance solely for tax reduction, while Specific Anti‑Avoidance Rules (SAAR) target particular schemes. Without GAAR, businesses can exploit gaps not covered by SAAR, eroding the tax base and creating unfairness for compliant taxpayers. The government highlights three main challenges: unclear implementing regulations, limited human resources to assess economic substance, and safeguarding taxpayer rights in disputes.

When designed and applied proportionally, GAAR can boost state revenue while preserving legal certainty for investors, supporting a conducive investment climate. Nevertheless, legal uncertainty may arise if implementation guidelines remain vague, potentially deterring business decisions. Consequently, detailed operational rules and an independent panel are viewed as essential to achieve fiscal balance.