TheJakartaPost
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Revising corporation tax, VAT rates not enough
The effectiveness of lowering corporation tax rates on the government tax revenues depends on the taxpayer responsiveness. #opinion
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A building of the Directorate General of Taxation in Jakarta (kontan.co.id/File)
The instability of tax revenues over the last four years has prompted the government to fiddle with tax rates.
A simulation is being carried out on the 25 percent corporation tax rate, which will be cut to 20-22 percent and the 10 percent value added tax (VAT) rate, which will be increased to 12 percent.
This tax counterbalancing strategy is unremarkable and can be done when the economy is slowing down. The main objective is to boost government tax revenues especially when tax extensification is hard to achieve.
The reduction in the corporation tax rate is expected to encourage business competitiveness in combating transfer pricing practices and to attract foreign companies.
Hence, job opportunities are created and technology transfers will occur.
However, the effectiveness of lowering corporation tax rates on the government tax revenues depends on the taxpayer responsiveness. Thisresponsiveness requires two things.
The first is greater taxpayer compliance. Unfortunately, empirical experience in many countries shows that lower rates are not necessarily followed by increased taxpayer compliance.
