DPR approves tax bills<\/p>\n
Yesterday the House of Representatives (DPR) finally approved
\nfour bills on taxation previously proposed by the government to
\namend the 10-year-old tax laws. This approval, constitutionally
\nrequired before a bill can be signed into law by the president,
\nmarks a new stage in this country's efforts at modernizing its
\neconomy.<\/p>\n
Ten years ago this country set up a historic milestone by
\nintroducing a totally new tax system, the first of its own during
\nits almost 40 years' existence as an independent republic. Before
\nthat time, what the country had was an assortment of obsolete tax
\nregulations inherited from the colonial period.<\/p>\n
National governments need money to finance their activities of
\ngoverning and serving their people. Some governments have
\nsubstantial revenues from state-owned assets or facilities, which
\npermit them to dispense with taxation altogether, or to rely on
\ntaxation only to a limited extent. But most governments in these
\nmodern days typically find themselves on the other side of the
\nledger, having on balance negative net worths apart from their
\ntaxing power.<\/p>\n
In a way, before 1984, Indonesia financed its government and
\ndevelopment mostly by the revenues it received from its oil and
\ngas assets, as well as from foreign loans and grants. The decline
\nof world oil prices made that policy unsustainable. In addition
\nto that, the amount of funds needed to service its foreign debts
\nhad been increasing steadily from year to year, to the extent
\nthat within a few years, the amount of money flowing out of this
\ncountry to service its external public debts could have been
\nhigher than the amount of new loans and grants it could expect to
\nflow in.<\/p>\n
Tax laws numbers 6, 7 and 8 of 1983 and No. 12 of 1985 were
\ndesigned and introduced to eliminate Indonesia's overdependence
\non oil revenues and foreign loans. With that series of tax laws,
\na fundamental change took place in how to and who should finance
\nthis country's government and development. With the approval of
\nthe DPR at that time, it was decided that taxation would be
\nrelied on to become the main provider of state revenues.<\/p>\n
It was a tough decision. And it works.<\/p>\n
Within the last 10 years, the government's budgets have
\nincreasingly relied on revenues from income tax and value added
\ntax. In fiscal year 1983-1984, income tax, corporate tax, MPO
\ntax, PBDR tax and sales tax contributed about 20.29 percent of
\ninternal revenues, or only 16.93 percent of the total revenues
\n(including foreign aid) needed to finance the government's
\nexpenditures, both routine and development. During the fiscal
\nyear 1993-1994, after the five former taxes had been simplified
\ninto only two kinds of taxation, income tax and value added tax
\nincreased their contribution to more than half of internal
\nrevenues, or about 40.61 percent of total revenues.<\/p>\n
Simultaneously, that change made the country's economy much
\nless vulnerable to the fluctuations of world oil prices.<\/p>\n
And besides being a revenue provider, the taxation system is
\nto function as an income redistribution tool. For that reason it
\nis systematically progressive in the sense of taking into account
\nan increasing proportion of income increases. At least this is
\nthe theory behind the policy. Empirically only modest success can
\nbe claimed in reducing the incomes of the very wealthy by tax
\nmeasures -- this being so even in countries like the United
\nStates and Great Britain.<\/p>\n
In the case of Indonesia, the fact that the taxpayer base has
\nsignificantly increased, is already an achievement in itself.
\nWhen the new taxation system started 10 years ago, less than
\n700,000 taxpayers -- persons and legal bodies -- were recorded.
\nNowadays, the base has increased more than fourfold, to more than
\n3.1 million taxpayers.<\/p>\n
However, another important function of taxation, that is
\nresource reallocation, has not been applied so far to the
\nIndonesian taxation system. In fact when the government
\nintroduced the system in 1984, it was categorically emphasized
\nthat the taxation system would not be used for resource
\nreallocation, which would basically provide the government with a
\ntool to alter the product-mix generated within the private
\nsector. Government officials at that time pointed out again and
\nagain that the system of taxation would not be used as an
\nincentive or disincentive to the economy.<\/p>\n
The limitation of the functions of the taxation system to
\nthose of revenue provider and income redistribution has made
\nIndonesia less and less competitive in its efforts to invite much
\nneeded foreign investments.<\/p>\n
The newly approved amendments to the tax system break this
\nlimitation. With these amendments, once they are signed into
\nbinding laws, the country will have more options to choose from
\nin engineering its economy towards its development goals. This is
\nobviously the most substantial change.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/dpr-approves-tax-bills-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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