The bill includes changes to several provisions, which it is hoped will increase state revenue next year and thereby support the government’s pursuit of fiscal consolidation.

“The government is committed to achieving a sound state budget with a deficit below 3 percent [of GDP] by 2023. While aiming to spend better, the government must also optimize state revenue,” Finance Minister Sri Mulyani Indrawati said in a statement on Thursday.

The second draft of the bill, a copy of which was obtained by The Jakarta Post, is the latest piece of legislation based on an omnibus law structure, after the 2020 Job Creation Law, meaning a single new law has the authority to revise multiple prevailing laws.

The second draft overhauls most of the content of a first draft obtained by the Post in early June. The house only began its discussion of the bill on Sept. 13.

The following are some of the key points of the bill and changes from the first draft.

Corporate tax cut canceled

Article 17 of the proposed income tax revision keeps the corporate income tax at 22 percent, thereby revoking a provision in the first draft that would have brought the rate down to 20 percent next year.

The new law had been expected to follow Law No. 20/2020 on the COVID-19 response, which lowered corporate income tax from 25 percent to 22 percent in 2020 while promising another cut to 20 percent two years later.

A lower rate could attract more investment and help boost economic growth and job creation, albeit causing a drop in the second-largest source of tax revenue.

Indonesian Employers Association (Apindo) chairman Hariyadi Sukamdani told the Post on Monday that revoking the planned cut could create the opposite effect, as Indonesia’s rate was high compared with other countries.

“Canceling the reduction would have an impact on Indonesia’s investment competitiveness,” Hariyadi said, adding that the government should come up with a plan to offset the effect.

A corporate tax cut could greatly help businesses save funds, develop their operations and improve their cash flow during the COVID-19 pandemic, he said.

Meanwhile, the government in the latest version of the bill removed an alternative minimum tax that had been stipulated in the first draft and would have levied a tax on companies’ gross revenue rather than profit, based on the suspicion that some companies were falsely reporting losses while expanding their operations.

Read also: Second tax amnesty: How is it different from the first?

Discounts in second tax amnesty

In changes to a planned second tax amnesty, the rate payable on newly disclosed assets has been greatly reduced compared with the first draft of the bill, in line with what most political parties had demanded.

Under the initial draft, taxpayers would have to pay 15 percent tax on the declared asset value, or 12.5 percent if they decided to reinvest the funds in government bonds. That was to apply to assets acquired from Jan. 1, 1985, to Dec. 31, 2015.

Now, the rate is only 8 percent for declared assets or 6 percent if they are reinvested in government bonds or downstream projects. The rate goes up to 11 percent for assets that are declared but not repatriated.

For assets acquired from Jan. 1, 2016, to Dec. 31, 2019, the rates stipulated in the first draft for declared assets were 20 and 30 percent, depending on the same conditions, but those have been slashed to 12 and 14 percent in the current bill. The rate for unrepatriated assets is set at 18 percent.

To avail themselves of the amnesty, taxpayers have to declare their assets through a report sent to the tax office from in the first half of 2022. The law obliges taxpayers to repatriate overseas assets no later than Sept. 30, 2022, and to reinvest them by Sept. 30, 2023.

The provision, while resembling in structure the 2016 tax amnesty, has been renamed a “voluntary compliance improvement program”.

Apindo’s Hariyadi supported the provision, saying “taxpayers should be given another chance”. He said he believed more people could settle their problems and enter the system. In return, the government would gain more taxpayer data.

However, the Indonesian Forum for Budget Transparency (FITRA) contested the idea. FITRA secretary-general Misbah Hasan told the Post on Friday: “It would be ineffective and akin to rolling out the red carpet for tax evaders”.

Read also: Indonesia’s carbon tax plan: Will it fix the budget, the climate or neither?

Carbon tax less daunting for coal power producers

The bill in its latest version more than halves the minimum carbon tax rate to Rp 30,000 (US$2.10) per ton of carbon dioxide (CO2) from Rp 75,000 stipulated in the first draft.

Under the new law, the proposed carbon tax, set to take effect on April 1, 2022, will be implemented through a carbon-trading scheme.

The government will set the carbon tax rate slightly above the carbon price in the domestic carbon market. Even if the market price falls below Rp 30,000 per ton, the tax is kept at the minimum rate.

The bill will oblige the government to start developing a carbon-trading mechanism this year, followed by the implementation of a cap-and-tax system for coal-fired power plants before 2025. Starting in 2025, carbon trading will be in effect at full scale and expanded to other sectors.

The carbon tax for coal-fired power plants is to be initially capped at Rp 30,000 per ton.

Companies that have participated in carbon trading will get a reduction on their carbon tax.

Read also: Tax office defends proposed VAT on education, staple foods

VAT to rise

The bill mandates a gradual rise in value-added tax (VAT) from 10 percent to 11 percent by April 1, 2022, and to 12 percent by Jan. 1, 2025. Under the first draft, a 12 percent rate would have become effective immediately next year.

The government may adjust the rate between 5 and 15 percent after consulting with the House. Under the previous draft, a multi-tariff scheme allowed a hike to 25 percent for some high-end goods, but that has been removed in the final draft.

The VAT exemption for staple foods, education and health care, among many other goods and services, is to be scrapped. This provision, stipulated already in the initial draft, has caused a public outcry.

The bill introduces an additional provision under Article 16B of the revised VAT section allowing the government to exempt such goods and services from VAT, but only temporarily.

Finance Ministry spokesperson Yustinus Prastowo defended the article via Twitter on Friday, saying: “It provides room for adjustment according to economic dynamics”.

However, Consumer Protection Foundation (YLKI) secretary Agus Suyatno, speaking to the Post on Monday, said the government should be wary of implementing the policy, as it could be a burden on the public and on businesses.

“Don’t let this policy hit the people who are about to get back on their feet,” he said.

Read also: Indonesia aims to tax rich more to finance large pandemic deficit

Changes to individual income tax brackets

Article 17 of the revised income tax part will hike the high-net-worth individuals (HNWI) tax from 30 to 35 percent by adding a new taxable income bracket of more than Rp 5 billion.

However, people with less than Rp 60 million in taxable income, according to the bill, will only pay a rate of 5 percent now. Under the prevailing law, the threshold is Rp 50 million, meaning more income groups now enjoy the lower rate rather than the higher 15 percent rate.

Meanwhile, the government is seeking to tighten its grip on taxpayers. Article 2 of the bill introduces a new provision that allows public ID numbers to be used as taxpayer identification numbers. The provision is related to the fact that many Indonesians have yet to register as taxpayers.

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