Workers with a maximum monthly salary of Rp 5 million working in the agriculture, fishery and manufacturing sectors are now eligible for a waive in income tax following a government ruling.

The tax office said Wednesday that the tax incentive – part of an economic stimulus package aimed at bolstering people's spending power and generate robust consumption — was integral to the economy as it struggles with the impacts of the global financial meltdown.

The measures will cost the government Rp 6.5 trillion, Darmin Nasution, Finance Ministry's director general for taxation, said.

The agricultural sector includes the sub-sectors of food-crop plantations, hunting and animal breeding while the fishery sector includes sea-fishing and sea-plant cultivations, states a report by the taxation office.

Among the three sectors, the manufacturing sector will receive the most incentives, with the sub-sectors of food and beverage, milk, shoes and print such as newspapers.

"We chose those sectors because they are export focused industries. Those industries also suffered the most during the crisis," Darmin said.

"There are some export-oriented industries that were not selected for the waiver, such as mining, because most of the workers there already earn high salaries."

Exports have been falling since last October with January's shipments plunging by 36 percent

compared to the same period a year earlier.

Darmin said only workers whose monthly earnings were between Rp 1.32 million, the threshold for taxable income, to Rp 5 million, would receive the incentives.

Under the existing laws, the tax rate for workers with a yearly income less than Rp 50 million, or lower than Rp 4.8 million per month, is set at 5 percent.

For salaries between Rp 50 million and Rp 250 million, the tax rate stands at 15 percent.

"The incentives must be passed on by employers in cash form to their employees on pay-days. The policy is the same for companies that cover workers' income taxes," Darmin said.

"Employers must submit a list of workers eligible for the incentive to the tax office," he said.

"Employers must then submit the receipt on tax cuts to their workers, who can then credit their tax in their annual individual income tax reports," he added.

The remarks contradict earlier plans under which the incentives were designated for companies that cover their workers' income tax obligations. In Indonesia, most businesses cover the income tax of their employees.

When asked about why the incentive was directed at workers and not companies, Finance Minister Sri Mulyani Indrawati said, "If nobody buys the companies' products [because of low purchasing power], then what?".

Darmin said the incentives would help stimulate the domestic purchasing power because employees would earn extra income from their tax-break.

"If a company does not pay tax incentives to its employers, then we will fine them at a rate of 100 percent of the total incentive," he said.

The incentive is part of the government’s Rp 73.3 trillion stimulus package aimed at cushioning the impacts of the worsening global economic crisis.

Darmin said tax revenue increase by 5 percent to Rp 34.3 billion in January from Rp 32.7 billion in the same period last year. (hdt)

Business Sectors

1.  Agriculture    

v Food crop plantations

v Animal breeding

v Hunting

2. Fishery    

v Sea fishing

v Sea plantation cultivation

v Fishery services

3. Manufacturing    

v Food & beverages

v Sugar processing

v Textile processing

v Textiles

v Milk          

v Textile  finishing

v Publishing&Printing

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