Creativity sought to avoid burdening business

Creativity sought to avoid burdening business

The government's plan to increase tax revenue and cut
subsidies on fuel and electricity has raised concern in the
business community and among analysts. Economist Sri Adiningsih
of Gadjah Mada University in Yogyakarta spoke to The Jakarta
Post's Sri Wahyuni about the issue.

Question: What is your comment on the government's plan?

Answer: From a tax ratio point of view, our tax ratio is very
low compared with other countries that are highly competitive,
such as Malaysia, Singapore and even the U.S., where the tax
ratio is some 20 percent. Ours is estimated at only 13.3 percent
for the year 2003. This means that the country's existing tax
potential has not been exploited very well.

However, we have to be very careful in doing so because if we
collect taxes haphazardly, it will directly affect the country's
competitiveness.

We have to remember that we entered the ASEAN Free Trade Area
in Jan. 1 this year. Yet our competitiveness is quite low, the
lowest in the region, and our export growth is also very low
while investment is stagnant.

Therefore, if we are not careful about increasing tax revenue
it (the plan to increase tax revenue) will backfire.

Could you elaborate?

If our competitiveness is unattractive it will be hard to
increase exports, much less to achieve economic growth of 5
percent. To have that kind of growth we need to increase exports
and investment growth by up to at least 10 percent. This will
obviously have something to do with taxation.

Indonesia's taxation and assessment system is not attractive
compared to those of our competitors. Although tax revenue is
generally not high, if we look at more detailed figures we will
see that Indonesia applies a corporate tax of 30 percent. Compare
that to Singapore, for example, where the corporate tax is only
26 percent, or Malaysia with a corporate tax of 28 percent.

Besides there are also various kinds of assessments and other
levies, both official and unofficial, that businesspeople in
Indonesia must pay, which explains why some businesses spend up
to 50 percent of their operational costs paying taxes and
assessments.

This is indeed a big problem. I agree that we need to increase
the tax ratio, but we have to prevent it from backfiring on the
country's already worrying competitiveness.

What is your suggestion?

The country's whole tax system should be corrected. As you may
know, the inheritance tax is one of the biggest tax revenue
producers in developed countries. We don't have such a tax here.
This is a mistake.

Let's say that the value of Indonesia's moving assets is some
Rp 250 trillion a year. If we apply an inheritance tax rate of 20
percent, for example, then the country would have additional
revenue of some Rp 50 trillion a year. This is obviously quite a
large sum of money.

The point is, again, that we need to look for new taxes, but
never ever squeeze the (sectors) that will directly affect the
country's competitiveness. Putting the taxation and assessment
system in order will also help increase the country's
competitiveness, because taxes and assessments have for a long
time burdened the industrial sectors, not just the unofficial
ones but also the official ones.

Therefore, I think it's time for the government to consider
taxation as a form of investment, by regulating and putting it in
order so that the effort to increase the country's tax ratio will
not hit its competitiveness.

In this case, creativity in creating new taxes that will not
burden the business world is urgent. And the inheritance tax is
an example.

Is such a tax possible in the near future?

If we started preparing it now, I think we would be ready to
apply it in within a year or two. Remember that we have to find a
way to pay the public debt interest without burdening the state
budget. If we can create a new tax source, for example the
inheritance tax, we would be able to at least pay a part of the
public debt interest.

What of the government's plan to cut subsidies on fuel and
electricity? Would this have a large effect on business?

The subsidy cuts for fuel and electricity will not directly
affect the business world. And if it does, it will not be that
great. That is because businesses pay the market price for fuel
and electricity. What will be directly affected by the cuts is
inflation.