Indonesian presidential candidate Prabowo Subianto will slash corporate and personal income taxes if he comes to power, part of a plan to compete with low-tax neighbors like Singapore in luring more investment to Southeast Asia’s biggest economy.
Tax reform is one of the key economic programs that Prabowo, as the former general is known, will outline in his election campaign against President Joko Widodo ahead of the April vote, according to Dradjad Wibowo, a politician from the National Mandate Party who is helping to formulate policy for the Prabowo camp.
The plan, which may be rolled out over 10 years, is yet to be finalized, Wibowo said. While he didn’t disclose possible tax rates, he said the aim is to lower them “on par with Singapore.”
Indonesia currently has a top personal income tax rate of 30 percent and a corporate tax rate of 25 percent. Singapore has a corporate tax rate of 17 percent and a top individual rate of 22 percent for residents.
“Our nominal tax rate is too high,” Wibowo said in an interview in Jakarta on Wednesday. Tax reform is needed to attract more foreign business as well as to encourage compliance, he said.
Neither side has released a detailed economic policy plan yet. At a briefing on Friday, Wibowo said a Probowo government would seek to raise the non-taxable income threshold and reduce income tax, beginning with rates that apply to individuals.
Wibowo said tax reform would be “one of the keys to our policy in the future.”
Both contenders faced each other in the 2014 election. While campaigning for next year’s vote is not yet fully underway, early polls show Widodo, known as Jokowi, with a significant lead. A survey by Saiful Mujani Research and Consulting published in October showed Jokowi with 60.2 percent support versus 28.7 percent for Prabowo.
Indonesia has one of the region’s lowest tax-to-GDP ratios of about 11 percent and a poor record of tax compliance. The Jokowi government has been trying to improve both measures, including undertaking a successful tax amnesty that unearthed more than $360 billion of undeclared assets held in Indonesia and abroad.
That’s helped to boost government income, with authorities forecasting 1,903 trillion rupiah ($129 billion) in revenue this year, up from 1,784 trillion in 2016, the year Finance Minister Sri Mulyani Indrawati took office and pledged to catch tax dodgers. The government has targeted a tax-to-GDP ratio for this year of 11.6 percent.
An emerging market rout and sluggish economic growth has made Jokowi’s job more complicated. The economy is growing at about 5 percent, well short of the 7 percent the president pledged when he came to power. Jokowi will set “more realistic” targets if he returns to office, a senior party official said this month.
Prabowo is targeting growth of 6 percent to 6.5 percent by the end of his first term. He’ll aim to boost manufacturing in the food, agriculture and fisheries sectors to help Indonesia “become the giant food bowl of Southeast Asia and, at the least, feed Indonesia’s rising population,” said Wibowo.
“Our policy will be more pro-growth, more pro-business and also take stability, equity and sustainability very seriously,” he said. “The current climate is very bad for growth and business.”