Aditya Suharmoko, The Jakarta Post, Jakarta
The government and the House of Representatives are set to solve stumbling blocks hampering the deliberation of the income tax bill by the end of this week, a ministry official says.
Director General of Taxation Darmin Nasution said Thursday the impediments include the taxable income threshold, the dividend tax and the worldwide income tax.
The draft income tax bill is expected to be implemented in 2009.
Darmin said the government was proposing to impose income tax to Indonesian citizens working or doing businesses abroad. "But it will not be double taxation," he said.
International double taxation occurs when two different countries subject a comparable tax on the same taxpayer on the same taxable item. Indonesia now uses tax treaties to prevent double taxation between countries.
According to Darmin, Indonesians working or doing businesses abroad will be subject to income tax in both the country in which they work and in Indonesia. However, he said, they would pay in Indonesia only if their country of employment imposed a lower income tax than in Indonesia.
"They need to pay the balance to Indonesia," he said.
He also said foreigners working in Indonesia would be subject to a similar income tax scheme by their home country.
Of the taxable income threshold, Darmin said the government had agreed to raise the threshold to Rp 15.86 million (US$1,700) per year, up from the current threshold of Rp 13.2 million, or Rp 1.1 million per month.
The House's committee on the draft income tax bill, however, is proposing a rise to between Rp 24 million and Rp 30 million per year in a bid to reduce the tax burden on low-income people amid surging consumer prices. Prices have soared recently with the rising cost of crude oil and commodities worldwide.
A low threshold, the committee said, would burden blue-collar workers, whose minimum wages are about Rp 1 million per month, as the government expects an increase in minimum wage, which is set by each provincial government, next year.
The committee's chairman, Melchias Markus Mekeng, said that with the salary rise, blue-collar workers might have to pay income tax, which would reduce their earnings and also their purchasing power.
Indonesia's economy is highly dependent on people's purchasing power, which generates roughly 60 percent of the economic growth. The remaining 40 percent is fueled by exports and investment.
Darmin declined to comment on whether the government would agree to the committee's proposal of raising the taxable income threshold to at least Rp 24 million.
"We will go to the House's villa in Cikopo, Puncak, (to discuss that)," Darmin said.
At their last meeting in Puncak two weeks ago, the House and the government agreed to set new income tax rates. Under the bill, people earning up to Rp 50 million per year will be subject to a 5 percent tax and people earning between Rp 50 million and Rp 250 million to a 15 percent tax.
Earnings between Rp 250 million and Rp 500 million per year will be taxed 25 percent and above Rp 500 million at 30 percent.
The House and the government has also set new tax rates for companies at 28 percent in 2009 and 25 percent in 2010, far lower than the existing rate at 35 percent, in a bid to stimulate companies to expand businesses.
For the income tax on a company's dividend payments to shareholders, the House has proposed eliminating entirely the current tax of 30 percent, committee member Andi Rahmat said.