On tax on deposit interest<\/p>\n
It is disappointing that The Jakarta Post has come out in
\nsupport of the government's proposal to raise the flat rate tax
\non the interest on bank deposits from 15 percent to 20 percent
\nafter only a very superficial analysis (Taxing interest incomes,
\nJan. 10, 2001).<\/p>\n
No economic logic justifies such a measure in the absence of
\nsome progressivity in tax scales for \"the big and small
\ndepositors\". To say that the administrative and collection
\nproblems caused by such differentiation, in view of the limited
\ncapacity of the tax office, would be too great is just not good
\nenough.<\/p>\n
To give the economy a much needed boost requires a reduction
\nin the rate, if not a total elimination of the tax. Among other
\nthings, the removal of the tax altogether would free up the
\nresources of the tax office for more productive uses, including
\ntheir reengagement to eliminate waste on the expenditure side of
\nthe budget, which is, unfortunately, still commonplace. To name
\nbut a few, we see reports of claims by the bureaucratic elite and
\npoliticians for overseas travel, of extravagant spending by
\ngovernment bodies and utter waste at many of the nation's
\noverseas posts. On this score alone, a \"comparative study\" of
\nexpenditures by each of the country's representative offices
\nabroad from off-budget as well as budgetary sources would make
\nfascinating reading.<\/p>\n
Intended or otherwise, the overall impact of the proposed flat
\nrate increase on bank deposit interest earnings would first be to
\nfurther reduce the volume of funds available for private
\ninvestment. With foreign funds now all but dried up this would be
\nquite tragic. In the hands of the government, the additional tax
\nproceeds would most likely be channeled into unproductive areas
\nand to help defray the costs of the utterly wasteful government
\nexpenditures of the type already mentioned, and into areas where
\ninternationally acceptable auditing procedures and standards are
\nalmost nonexistent.<\/p>\n
But just as importantly, the absence of a progressive tax
\nstructure will have further negative consequences on private
\nconsumption expenditures by households, by small business and the
\nlarger firms struggling to survive -- the current engines of
\nIndonesia's economic growth and the sectors that have suffered so
\nharshly from the financial and political crises which have
\nplagued the nation since July 1997.<\/p>\n
The movement of funds away from the banks to the share market,
\nas the Post predicts, is also unlikely to take place for the
\nreason that the patterns of behavior of these groups are markedly
\ndifferent than those of the big depositors. For the smaller
\npeople, not only is the share market not understood, but the risk
\nof losing all their savings is much, much greater.<\/p>\n
Not only would the tax hike give rise to a misallocation of
\nresources, but the net impact of the increased tax on bank
\ndeposit interest would work to reduce the nation's economic
\ngrowth below what it would otherwise have been if the status quo
\nhad been held or the tax had been reduced or abolished.<\/p>\n
HINDRATI<\/p>\n
Jakarta<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/on-tax-on-deposit-interest-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }