Fri, 01 Aug 2008
Thu, 07/31/2008 10:23 AM | Reader's Forum

I refer to The Jakarta Post's report of July 22 titled "Errant taxpayers to face fines, jail".

The report says that the tax office will impose fines and prison sentences upon those who fail to apply for tax identification numbers (NPWP) by the end of the year, as Indonesia currently only has six million registered taxpayers, compared to an estimated 40 million eligible taxpayers.

The tax office needs to be reminded that Indonesia only has 10, 217,577 credit card holders by the end of April 2008, according to Bank Indonesia, as quoted by Kontan newspaper of July 10.

Every cardholder carries multiple cards and it's also normal for cardholders to give supplementary cards to family members. Hence, the real number of "eligible cardholders" should be even lower than the six million registered taxpayers.

The alleged estimated 40 million eligible taxpayers are actually derived from those who pay PBB taxes (paying tax on land and buildings, or property taxes). But these are assets and to tax citizens based on assets, instead of income and consumption, is unusual.

These lands, buildings or properties are acquired over a long period of time through accumulation, or through delayed income, as with mortgages.

Private property ownership is the foundation of entrepreneurship in a modern economy. The long term negative impact on the economy of this indirect disincentive to property ownership is tremendous.

Despite the recent annual trade balance of about US$50 billions, Indonesia has suffered long-term capital outflows as seen from its current accounts.The recent surge in foreign exchange is more from portfolio investment, plus foreign direct investment.

Indonesia is not the only economy in Asia that has a low tax ratio. Taiwan has an even lower ratio at about 12.5, whereas China's tax ratio is about 20 percent of GDP, but China's VAT or consumption tax ratio is 17 percent and its corporate income tax ratio is only 25 percent.

Higher tax ratios might be achieved from higher VAT or consumption tax, but certainly not by targeting assets or by penalizing consumption of big ticket items, especially since Indonesia as a developing country is still very much in need of capital formation and accumulation.

SIA KA MOU
Jakarta



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