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Daya Anagata Nusantara, more commonly known as Danantara, has recently become a familiar name. The government officially established the Investment Management Agency (Badan Pengelola Investasi / BPI), known as Danantara, under Law of the Republic of Indonesia Number 1 of 2025, which amends Law of the Republic of Indonesia Number 19 of 2003 regarding State-Owned Enterprises.

Under this law, the government mandates that Danantara serves as an agency responsible for managing state-owned enterprises. To carry out its duties, the president has delegated part of his authority to this institution, making Danantara directly accountable to the president. The agency’s primary objective is to optimize state-owned enterprises’ investments, operations, and other resources.

Danantara’s Authority

Law of the Republic of Indonesia Number 1 of 2025 grants six key authorities to Danantara, distinguishing it from other institutions. First, managing investment holding dividends, operating holding dividends, and state-owned enterprises dividends. Second, approving additional funds or reductions in capital participation in state-owned enterprises sourced from state-owned enterprises’ asset management. Third, forming investment and operating holdings in coordination with the Minister of State-Owned Enterprises. Fourth, approving proposals for asset write-offs or debt write-offs of state-owned enterprises, alongside the Minister of State-Owned Enterprises. Fifth, providing loans, receiving loans, and pledging assets, subject to presidential approval. Sixth, ratifying and consulting on work plans and budgets of investment and operating holding companies with the House of Representatives and relevant government bodies.

This suggests that the agency established by President Prabowo Subianto holds significant authority. This authority stems from its role in managing substantial state-owned enterprises funds and assets, as reflected in Article 3G of Law of the Republic of Indonesia Number 1 of 2025, which sets Danantara’s minimum capital at IDR 1,000 trillion.

Danantara vs Investment Management Institution

Compared to the Investment Management Institution (Lembaga Pengelola Investasi / LPI), commonly known as the Indonesian Investment Authority (INA), the initial capital managed by Danantara is significantly larger. According to the Ministry of Finance, LPI received an initial state capital injection of IDR 15 trillion at its formation (Kementerian Keuangan, 2021).

Danantara’s capital will continue to grow, with some sources estimating it will manage up to USD 900 billion (The Straits Times, 2025). This would make Danantara the fourth-largest Sovereign Wealth Fund in the world, following Norway’s Government Pension Fund, the Abu Dhabi Investment Authority, and China Investment Corporation (Jakarta Globe, 2025).

However, despite managing far larger funds than LPI, Danantara currently does not receive any special tax privileges. Law of the Republic of Indonesia Number 1 of 2025 does not regulate Danantara’s tax treatment, and Government Regulation Number 10 of 2025, which governs Danantara’s taxation, also lacks specific provisions.

Tax Treatment Privileges of LPI

Through Government Regulation Number 49 of 2021, the government granted special tax privileges for LPI and its subsidiaries.

LPI benefits from a special tax provision that allows it to deduct reserve fund allocations from gross income. This is an exception to the general rule established under Article 9(1)(c) of Law of the Republic of Indonesia Number 7 of 1983 regarding Income Tax, as amended by Law of the Republic of Indonesia Number 7 of 2021 regarding the Harmonization of Tax Regulations, which generally prohibits the deduction of reserve funds from taxable income except for certain industries.

In addition to reserve fund deductions, LPI also enjoys an exemption from withholding tax on inter-company loans. Under normal circumstances, Article 23 of the Income Tax Law requires withholding tax to be applied to loan interest between specially related parties. However, LPI is granted an exemption when earning interest from loans provided to its subsidiaries or joint ventures.

Another tax advantage available to LPI relates to dividends received by foreign investors. Non-resident taxpayers who are investment partners of LPI benefit from a full exemption from income tax on dividends, provided that the dividends are reinvested in Indonesia for at least three years. If the reinvestment condition is not met, a reduced final income tax rate of 7.5% applies, which is significantly lower than the standard 20% withholding tax rate imposed under Article 26 of the Income Tax Law.

Creating a Level Playing Field

To enhance Danantara’s performance and create a level playing field with LPI, the government needs to take two key actions. First, the government must establish clear tax policies for Danantara. This should include tax incentives for reserve fund allocations, tax incentives on inter-affiliate transactions, and tax incentives on Danantara’s investment returns.

Second, tax incentives for Danantara must be implemented in a timely, temporary, and targeted manner. This indicates that they should be directed at specific recipients and introduced at the right moment—particularly during Danantara’s early establishment. The goal is to attract new investments and create a more business-friendly environment for Danantara. Additionally, these incentives should be time-limited to ensure that Danantara’s operations remain sustainable and do not become reliant on fiscal support.

This approach aligns with the International Monetary Fund (IMF) report titled “Managing Tax Incentives in Developing Countries”. In the report, the IMF outlines several best practices for tax incentives. First, a clear objective must be defined for tax incentives (targeted). Second, recipient criteria must be well-defined (business type, sector, and scope). Third, a fixed validity period must be established for tax incentives (temporary). Fourth, clear protocols and procedures must be established for tax incentives, whether they require a formal application or not. Fifth, penalties should be imposed on taxpayers who misuse incentives or fail to meet investment commitments (Pecho, Markov, Wood, Auclair, & Velayos, 2024).

If these steps are implemented, Danantara has the potential to grow into one of the world’s leading Sovereign Wealth Funds.

 

Relevant Provisions

Law of the Republic of Indonesia Number 1 of 2025 regarding the Third Amendment to Law of the Republic of Indonesia Number 19 of 2003 regarding State-Owned Enterprises.
Law of the Republic of Indonesia Number 7 of 1983 regarding Income Tax as amended by Law of the Republic of Indonesia Number 7 of 2021 regarding Harmonization of Tax Regulations.
Government Regulation Number 10 of 2025 regarding the Organization and Governance of the Daya Anagata Nusantara Investment Management Agency.
Government Regulation Number 49 of 2021 regarding Tax Treatment of Transactions Involving Investment Management Institutions and Their Subsidiaries.

References

 

Jakarta Globe. (2025, Februari 5). What We Know About Danantara, Indonesia’s Second Sovereign Wealth Fund. Retrieved from Jakarta Globe ID: https://jakartaglobe.id/business/what-we-know-about-danantara-indonesias-second-sovereign-wealth-fund
Kementerian Keuangan. (2021, Februari 09). Pemerintah Tambah Modal Awal LPI Sebesar Rp15 T di 2021. Retrieved from Direktorat Jenderal Kekayaan Negara: https://www.djkn.kemenkeu.go.id/berita/baca/23237/Pemerintah-Tambah-Modal-Awal-LPI-Sebesar-Rp15-T-di-2021.html
Pecho, M., Markov, S., Wood, P., Auclair, R., & Velayos, F. (2024). Managing Tax Incentives in Developing Countries. New York: IMF.
The Straits Times. (2025, Februari 25). Indonesia launches new sovereign wealth fund Danantara, with eye on 8% growth . Retrieved from The Straits Times: https://www.straitstimes.com/asia/se-asia/indonesia-launches-new-sovereign-wealth-fund-danantara-with-eye-on-8-growth
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[LiaParticipant Rookie]

This is a very good analysis of Danantara. The article effectively communicates the agency’s significance and the importance of establishing appropriate tax policies. By addressing the suggested improvements, the article can be further enhanced.