T

he taxation director general says that the proposal to raise the annual non-taxable income benchmark to Rp 24 million (US$2,544) will in the long run benefit about 20 million low-income earners.

“The cost of living has gradually risen, so we need to adjust the benchmark,” taxation director general Fuad Rahmany told reporters on Tuesday.

As of January 2012, the directorate general recorded 8.5 million individual taxpayers. Since April, the office has conducted a survey to net new taxpayers, a move often feared by tax evaders, although the office rarely chases after low-income earners.

Fuad said if the limit was raised, the 20 million low-income population could breathe a sigh of relief as they would not be hunted by tax officers.

The current annual non-taxable income threshold stands at Rp 15.8 million, however, President Susilo Bambang Yudhoyono deemed that this policy needed to be adjusted as part of the government’s efforts to ease the burden on those with lower incomes amid the growing global crisis.

In April, Yudhoyono said that the government had officially proposed the House of Representatives raise the limit to Rp 24 million per year.

But the plan stoked debates within the ministry due to its consequences to the government’s revenues.

Fuad’s superior, Finance Minister Agus Martowardojo, estimated that if the non-taxable income cut-off was raised to Rp 24 million per year, the state would suffer an annual loss of Rp 12 trillion in unrealized tax revenue. Agus said that the policy needed to be carefully analyzed because the state had to also bear the hefty cost of energy subsidies.

In April, the House of Representatives rejected the subsidized-fuel price increase proposal, and the government was only given authorization to adjust the price if the actual Indonesian Crude Price (ICP) level deviated by an average of 15 percent within a six-month period from the assumed price of $105 per barrel.

Fuad, however, argued that there was no reason to worry about the income tax losses. “When we want to help the low-income segment, then we should not debate over tax losses. What we want to do is to maintain their purchasing power and welfare. The potential loss in tax revenues can be covered with other revenue streams,” Fuad said.

Fuad said that the taxation office had been preparing all the administration processes needed to implement the limit raise.

“Once we have completed all the needed adjustments, then we must introduce the new policy to companies so that they can adjust their taxation systems on their employees,” he said.

“So, the implementation of the policy will take time ... We will probably need between two and three months to make all the necessary preparations,” he added.

University of Indonesia taxation expert Darussalam said that he believed the policy needed to be implemented as soon as possible because currently, the low-income segment had begun to feel the impact of growing inflation.

“By maintaining the low-income segment’s purchasing power, the state can also compensate its potential loss by receiving more revenues from value-added taxes,” he said.

However, the Finance Ministry’s fiscal agency interim head, Bambang Brodjonegoro, said that although the new policy would boost consumption and could yield higher value-added tax revenues, the increase in revenue would not offset the policy’s potential losses.