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Editorial: Tax the poor, feed the rich
Jakarta’s plan to tax the Tegal-style sidewalk food vendors popularly known as warung tegal, or warteg for short, actually makes sense as part of the city efforts to bring the huge informal sector into the nation’s bustling modern economy
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akarta’s plan to tax the Tegal-style sidewalk food vendors popularly known as warung tegal, or warteg for short, actually makes sense as part of the city efforts to bring the huge informal sector into the nation’s bustling modern economy. As the economy grows, sooner or later everyone, without exception, will have to be incorporated into the formal sector and the national taxation system.
Jakarta, as the Indonesian capital, should take the lead in formalizing and modernizing the nation’s economy. Expanding tax coverage is imperative, not solely for the purpose of boosting the government’s coffers, but more importantly for the purpose of administering social justice. Having a registered taxpayer number not only confers obligations, but also entitlements to citizens. This is probably the side of the tax system that many people, particularly those who oppose paying taxes as a matter of principle, often forget.
Crudely put, the objective of the taxation system is for the government to tax the rich in order to feed the poor. To be able to do this, however, those who are paying taxes and those who are receiving the benefits must be properly registered and administered under a single national taxation system. In other words, everyone, rich and poor, must come within the system, or the so-called formal sector of the economy.
Taxing warteg and the other food stalls and vendors that line the streets of Jakarta is therefore more a question of “when” rather than “if”. Jakarta Governor Fauzi Bowo, whose office first broached the plan to impose the tax beginning on Jan. 1, was quite right in delaying its implementation. The timing is not ripe, and may even be counterproductive to the current state campaign to expand the tax coverage in the country.
The original plan was to require any business that reports a yearly income of more than Rp 60 million (US$6,600) to pay tax. The national taxation law allows each region to impose a local tax of up to 10 percent on businesses that have so far been exempt because they were considered part of the informal sector of the economy.
While warteg were obvious targets because of their ubiquitousness in Jakarta, there are a series of other businesses that also fall within this category, including the sellers of meatball noodle soup, of which US President Barack Obama was fond of when he was a child growing in Jakarta, and the equally popular nasi padang. You can have a decent meal for as low as Rp 3,000 (33 US cents) a time at any of these places in Jakarta
The informal sector of the economy has played an important cushion as the economy went from one crisis to another. When the formal economy headed south during the Asian financial crisis in the late 1990s, the informal sector provided millions of people with jobs and incomes, and yes, inexpensive meals, too. The sector once again became the nation’s savior when much of the economy suffered along with the global economic recession in 2008 and 2009.
But this begs the question of when would it be a good time to bring this informal sector into part of Indonesia’s emerging modern economy, which also means bringing it under the national taxation system?
The answer lies in the government’s ability to administer the tax system as fairly and efficiently as possible. The current system still smacks of injustice. Just check where a huge chunk of the government’s energy subsidy is going. Unless this and other anomalies are corrected, taxing warteg would only lead to the impression that the government is taxing the poor to feed the rich.
