Businesspeople reject new tax amendments

The Jakarta Post, Jakarta

Local businesses grouped in the Indonesian Chamber of Commerce (Kadin) and representatives of foreign firms operating here have rejected the proposed amendments to the tax legislation, arguing they would hurt the economy more than benefit it.

"The amendments place too much power in the hands of tax officials and excessively heavy sanctions on taxpayers, creating a situation that could burden businesses and scare away investment," Kadin chairman M.S. Hidayat said on Monday.

"We request that the deliberation and implementation of the new legislation be put on hold, in the interests of our economy."

Hidayat explained that Kadin does not object to the government's efforts to reform the country's taxation system, but insisted that it should actually lead to a more equitable and transparent system that supported the competitiveness of Indonesia's businesses and its investment climate.

Kadin saw the proposed amendments as failing to do all of these things, Hidayat said, referring to how unscrupulous tax officials could still abuse their powers due to a lack of effective sanctions, and how plans to reduce income tax rates to between 25 percent and 30 percent would only come into effect in 2010, while the rates in other Asian countries were already lower than these.

"The requirement to state expenditure in annual tax returns will only create an administrative nightmare for businesses, as well," he said.

National Economic Recovery Committee (KPEN) chairman Sofyan Wanandi highlighted how several draconian aspects of the draft amendments -- such as direct jail terms and the freezing of bank accounts following on from simple negligence or mistakes in submitting tax data -- could discourage businesses.

"Businesses will surely stop dead in their tracks if their bank accounts are frozen over tax problems," he said.

The government has submitted to the House of Representatives its proposed amendments to Law No. 16/2000 on general taxation arrangements and procedures, Law No. 18/2000 on VAT and luxury tax and Law No. 17/2000 on income tax.

Kadin had actually been involved in the drafting of the amendments, together with the tax office, and had supported the amendments, as many of its pro-business suggestions appeared to have been accommodated. The tax office, however, later made changes to the amendments to the dismay of Kadin.

Now that the draft amendments had been submitted to the House, Hidayat -- himself a lawmaker -- said the business community would do its best to lobby legislators to amend the amendments.

Vice chairman of the Jakarta-Japan Club Foundation's taxation committee, Hiroo Koshino, and the chairman of the International Business Chamber (IBC)'s tax committee, Phillip J. Shah, agreed, saying tax reforms should stress legal certainty, greater equality as between tax officials and taxpayers, and a tax system based on high moral standards.

"A tax system can be said to be successful if it is fair, simple, certain and competitive," Shah said.

Vice chairman of the Indonesia-Australia Business Council, Peter G. Fanning, said that the draft amendments to the tax legislation could lead to existing investors reducing their commitments and new investors staying away.