Rendi Akhmad Witular, The Jakarta Post, Jakarta
Aiming to boost private sector investment, the government and the House of Representatives are planning to cut corporate income tax to a single rate of 25 percent in an amendment of the income tax law.
Wednesday's hearing between officials from the Directorate General of Taxation and House Commission XI on financial affairs proposed implementation of the new rate for the 2009 fiscal year.
"The House has agreed to set corporate income tax to a single rate of 25 percent, lower than our earlier proposal of 28 percent," Sumihar Petrus Tambunan, director of potency, compliance and collection at the Directorate General of Taxation told The Jakarta Post on the sideline of the hearing.
During last year's deliberations, the government proposed a single income tax rate of 30 percent in the first year after implementation of the new tax, 28 percent in the second year and 25 percent in the third year.
"There has been a lot of support for an immediate income tax cut to 25 percent to make the country more competitive in netting investors. We will see where this deliberation will take us," said Sumihar.
With the single tax rate, the government will be able to streamline bureaucracy in the tax system and boost supervision.
Sumihar said the proposal for the new rate was not yet finalized as the government and the House were still preparing strategies to cover an estimated decline in immediate tax revenue due to the rate cut.
"We prefer to have a lower income tax to lure more investment, but we will also need to discuss ways to raise tax revenue to help patch the short-term decline in our income tax revenues," he said.
Director General of Taxation Darmin Nasution said in late 2007 the government might see a Rp 31 trillion (US$3.3 billion) decline in income tax proceeds should corporate income tax be set at a single 25 percent.
Income tax for institutions and corporations is presently set at rates between 15 percent and 30 percent based on several income benchmarks.
In the 2007 state budget, the government targeted corporate tax revenues of Rp 474.5 trillion, excluding tax collected from international trade. The government has yet to finish calculating the total taxes it collected last year.
Tax revenues accounted for approximately 70 percent of the country's income for the 2007 state budget. The 2008 budget has targeted revenues of Rp 568.2 trillion.
The long-awaited amendments to the income tax law, the value-added tax law and the luxury tax law, have not proceeded on schedule since the government submitted drafts to the House in early 2006.
Many say the delay has been driven by a decision from the Finance Ministry not to provide grease money to House members for speeding up the deliberation process.
It is public knowledge that the House regularly requires the government to provide such money for deliberating legislation.