Thu, 29 Jan 2009
Aditya Suharmoko , The Jakarta Post , Jakarta | Thu, 01/29/2009 7:26 AM | Headlines

Businesses have warned the government against giving firms in labor-intensive sectors a waive in employees’ taxes they normally bear, with details of the plan still sketchy.

The government has laid out an economic stimulus package of Rp 71.3 trillion (US$6.3 billion) which includes an allocation of Rp 6.5 trillion to be used to compensate for employees’ income taxes usually paid by businesses, in an attempt to cut costs and allow companies to avoid layoffs.

The tax office and Finance Minister Sri Mulyani Indrawati have said calculations are still being made to determine eligible business sectors, but have hinted it will be intended for labor-intensive sectors and other sectors hit the hardest by the global economic downturn.

However, the Indonesian Chamber of Commerce and Industry (Kadin) says such a stimulus for labor-intensive industries will not reach its target, because companies in those sectors generally employ low-wage workers whose salaries are below the taxable income threshold (PTKP).

“It will be wasted; most workers in labor-intensive industries receive a salary below the PTKP, so they're not even taxed,” Kadin vice chairman Chris Kanter said Wednesday.

In Indonesia, unlike many other countries, most companies subsidize the income tax liabilities of their workers, thus giving businesses more of a burden.

In those job-intensive sectors however, most workers in general are paid around Rp 1 million per month, just above the regional minimum salaries where they work. The taxable income threshold is Rp 1.32 million per month, according to the income tax law enacted late last year.

Chris added that if the government continued with its plan to pay employees' income taxes, it might instead end up paying the income taxes of managerial-level employees “who are not supposed to receive such an incentive”.

“It would be better if the government allocated that money to paying the electricity bills for poor households, for instance. That can raise people’s purchasing power; they can spend their money buying more goods,” he said.

Indonesia's economy is driven mainly by private consumption.

This year, the economy is predicted to expand between 4.5 percent and 5.5 percent, down from an estimated 6.2 percent last year.

The government says it will boost spending this year to compensate for the decline in private consumption.

However, economists point out that government spending has slowed over recent years and cannot help jump-start the economy.

Legislator Dradjad H. Wibowo said the government’s tax cut was questionable if it was aimed at managerial-level employees.

“The stimulus allocation should have a strong basis,” he said.

Mulyani previously said the tax cut could be targeted at job-intensive industries that employed a large number of workers and had a good track record in paying taxes.

However, Anggito Abimanyu, the ministry's head of fiscal policy, said the ministry had not yet mapped out which industries would receive such a tax incentive.

“We have not made a mapping of the industries; we have just allocated the money and will talk with the House of Representatives regarding the industries,” he said.

He added the Finance Ministry would then issue a regulation before the industries could eventually benefit from the tax cut.



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