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Jakarta Post

State revenue to contract 10% as businesses suffer, tax incentives take effect: Sri Mulyani

  • Adrian Wail Akhlas

    The Jakarta Post

Jakarta   /   Mon, April 6, 2020   /   07:47 pm
State revenue to contract 10% as businesses suffer, tax incentives take effect: Sri Mulyani Tax officers assist taxpayers filing annual tax returns (SPT) at a tax office in Jakarta on March 11. (JP/Dhoni Setiawan)

State revenue is expected to nosedive this year as the government rolls out tax incentives, including corporate income tax cuts, amid the COVID-19 outbreak that has triggered declines in commodity prices and business output.

Finance Minister Sri Mulyani Indrawati said on Monday that the state revenue would amount to Rp 1.76 quadrillion (US$65 billion) this year, a decline of 10 percent year-on-year (yoy) compared with 2019. The figure is also lower than the 2020 state budget target of Rp 2.23 quadrillion.

Tax income will fall 5.4 percent yoy, while customs and excise revenue will decline 2.2 percent due to deferred import taxes in 19 manufacturing industries. Meanwhile, nontax income will contract 26.5 percent due to lower oil and coal prices.

“We expect negative growth in state revenue as the economy declines, commodity prices fall as a result of the oil price war and the government’s tax incentives for suffering businesses,” Sri Mulyani told House Commission XI overseeing financial affairs in a livestreamed meeting.

President Joko “Jokowi” Widodo has signed a government regulation in lieu of law (Perppu) that activates crisis protocols, such as widening the state budget deficit beyond the legal limit of 3 percent of gross domestic product (GDP), as the administration steps up efforts to cushion the economy in the face of a global recession caused by the pandemic.

Read also: 'File your tax returns': Tax office intensifies efforts to collect taxes as budget burdens multiply

The Perppu slashes corporate income tax from 25 percent to 22 percent for the years 2020 and 2021 and will be further reduced to 20 percent starting 2022. The government will provide additional rate cuts of 3 percent for public companies with at least 40 percent of their stock traded on the stock market.

It also exempts workers whose annual salary is below Rp 200 million from paying income tax for six months, as well as deferring import tax payments for six months for 19 manufacturing industries. It will also speed up the repayment of overpaid taxes.

The government now expects state spending to reach Rp 2.61 quadrillion this year, resulting in a budget deficit of Rp 853 trillion, 5.07 percent of GDP, after the government unveiled Rp 405 trillion of additional spending to cushion the adverse impacts of the virus outbreak and to strengthen the country’s healthcare system. The deficit figure is much higher than 1.76 percent set out in the state budget.

“This is an ongoing scenario because the situation is going to be rapidly developing, particularly in April and May during which the peak period is expected to occur, according to various projections,” Sri Mulyani said. “The scenario may change according to the virus development.”

Jokowi has declared a public health emergency and ordered large-scale social restrictions as the pneumonia-like illness spreads rapidly. As of Monday afternoon, at least 2,400 people were infected with more than 200 fatalities, according to official data.

The government now expects Indonesia’s economy to grow 2.3 percent in 2020, according to the baseline scenario, and even contract 0.4 percent in the worst-case scenario as the virus disrupts business activity.