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Govt may resume talks to cut income tax rate
The government is considering to continue assessing its long-delayed idea of reducing the rate of income tax in an effort to increase taxpayer compliance and boost the ratio of tax revenue to GDP in the long run, a tax official has said
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span>The government is considering to continue assessing its long-delayed idea of reducing the rate of income tax in an effort to increase taxpayer compliance and boost the ratio of tax revenue to GDP in the long run, a tax official has said.
Finance Ministry’s tax director general, Robert Pakpahan, said recently that the government had long been considering to lower the country’s income tax rate for companies and individuals in an effort to widen the tax base.
“Lower [tax] rates almost always widen the tax base as it encourages people to pay their taxes; and we have consistently done it in the past few years,” he said during a recent press gathering in Bogor, West Java.
For example, he said, the government had lowered the corporate income tax rate from 30 to 25 percent, as well as individual income tax from 35 to 30 percent.
Recently, the government lowered small and medium enterprise (SME) income tax to 0.5 from 1 percent in order to encourage SMEs to pay taxes, which the government had been struggling to collect. This effort appears to have worked well as the tax authority recorded an 18.61 percent increase in the number of SME taxpayers as of November, after the policy was implemented in July.
Although the issue of further lowering the tax rate had been floated among the public, he said, the government and the tax authority had yet to discuss the plan.
“We have yet to hold any discussion about this, but we have been thinking of reviewing the income tax rate for some time,” he said.
Despite the fact that the government was still considering this option, Raden Pardede, deputy chairman for monetary, fiscal and public policy at the Indonesian Chamber of Commerce and Industry (Kadin), welcomed the idea, saying that a lower tax rate, especially for corporations, could help businesses grow as costs would decrease.
Center for Taxation Analysis executive director Yustinus Prastowo also responded positively as a lower tax rate could boost the country’s economic growth as companies would have more money to expand, while consumers would have more money to spend.
However, Raden said, a lower tax rate might not necessarily be sufficient to boost economic growth.
“The government must create a comprehensive set of policies that target either investment or consumer spending, or maybe both, which will help boost them and our economy,” he said.
Another advantage of a lower tax rate, Yustinus continued, was a higher tax-to-GDP ratio as it would persuade people or corporations who had yet to comply to pay their dues.
This year, the government is aiming at a 11.6 percent tax ratio, while next year it targets 12.2 percent because of the increased tax revenue target in the 2019 state budget.
The target for next year is set at Rp 1.58 quadrillion (US$108.3 billion) in the newly passed 2019 State Budget Law.
Yustinus said, however, that the improved tax ratio would not be seen instantly.
“The rise would happen gradually over a long period of time, much like the increase of tax revenue after a lower tax rate policy is imposed,” he explained.
Prior to that, he said, the policy might impact the country’s tax revenue in the short term as the tax authority would collect less money before the tax base widened in the future.
