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New tax law expected to raise tax revenue by at least 9%
The Finance Ministry expects to collect higher revenues starting in 2022 when most of the new provisions come into effect.
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Finance Minister Sri Mulyani Indrawati briefs reporters about a tax break for new cars and homes on March 1. (Finance Ministry/Firman Akhmadi)
T
he Finance Ministry expects the newly passed Harmonized Tax Law (UU HPP) to raise its annual tax collection between 9.23 and 17.94 percent over the next four years, bringing in the much-needed funds to reconsolidate Indonesia's fiscal position.
New provisions introduced in the law are expected to add between Rp 140 trillion (US$9.86 billion) and Rp 353 trillion in annual tax revenue between 2022 and 2025, raising the total annual revenue to between Rp 1.64 quadrillion and Rp 2.32 quadrillion over the same time period, according to a Finance Ministry presentation shown at an online press conference on Oct. 7.
Maintaining the corporate income tax rate at 22 percent, raising ultra-high net individuals' (HNWI) personal income tax rate to 35 percent and raising the value-added tax (VAT) rate to 11 percent starting next year are among the new provisions.
“Most of the provisions will take effect in 2022. We estimate a Rp 140 trillion increase in tax revenue in 2022 and Rp 150 to Rp 160 trillion a year later,” Deputy Finance Minister Suahasil Nazara said during the press conference, adding that the tax office would work tirelessly to realize the target.
Read also: Key points from impending new tax law
Should everything go as planned, Indonesia’s tax to gross domestic product (GDP) ratio would reach 9.22 percent next year and 10.12 percent three years later, higher than the expected 8.56 percent for this year, the ministry concluded.
The House of Representatives passed the HPP on Thursday as the government works toward reinstating a budget deficit gap of 3 percent of GDP by 2023. The cap was lifted last year to finance COVID-19 relief programs.
