Cut in tax rates will not affect state revenue, says economist
JAKARTA (JP): M. Arsjad Anwar, a professor at the University of Indonesia (UI), said here yesterday that the cut in the income tax rates will not affect the country's tax revenues.
Speaking at a seminar on a strategic study about the 1994 tax law, Arsjad said that the cut in income tax revenues could be offset by higher receipts expected from the extension of withholding taxes and the increase in luxury sales tax tariffs.
He said that the luxury sales tax will not only carry higher rates but will also have a wider coverage, a result of the increase in people's disposable income.
"The increase in the extra income, resulting from the cut in the income tax rates, will consequently push up consumptive demand including luxurious goods and services," he told around 200 business executive and tax consultants at the seminar.
Speakers at the seminar, officially opened by Tax Director General Fuad Bawazier, included Marzuki Usman, the chairman of the Association of Indonesian Economists (ISEI), Sukamdani Gitosardjono, the president of Sahid Group, Markus Parmadi, the president of Lippobank and Ken Allan, a partner of KPMG consulting firm.
Director for Income Tax Ismael Manaf and Director for Value Added Tax Saroyo Atmosudarmo also spoke at the seminar.
The new income tax rates, approved by the House of Representatives (DPR) last month, will be enforced next month.
The range of the income tax rates are lowered to 10 percent and 30 percent from 15 percent and 35 percent at present, while the tariff range of luxury sales taxes has been widened to 10 percent to 50 percent from 10 percent to 35 percent at present.
The new tax law also covers the widening of the income tax bases, including the extension of withholding taxes to all service transactions and new withholding taxes on offshore services, on insurance premiums and capital gains derived in Indonesia by non-residents.
Savings
Arsjad said that the increase in the disposable income of both individuals and corporations as the result of the reduction of the income tax tariffs will increase domestic savings and public demand. It will, in turn, have a positive impact on the government's receipts from income tax on interest earnings.
The increase in the corporate profits will raise the government's dividend incomes from state-owned companies, he said of the government's sources of incomes, which could be used to fill the gap from the possible fall in receipts from income taxes.
About the implementation of the new tax law on the investment climate, Arsjad said that the cut in the income tax rates will improve the internal rate of the after-tax returns, which is expected to stimulate business activities.
"The lower tax rates will increase the number of feasible business activities, while the rise in the public savings will provide more funds available for new investments," he said.
Ken Allan, a partner of the Australia-based KPMG, said that Indonesia is still considered a relatively high tax jurisdiction.
He said, however, that the country's tax system is still favorable enough at the moment, given the level of foreign and domestic investments, despite the fact that its income tax rates are still relatively higher than other developing countries.
Allan said that in the future, tax holidays as those offered by most of Asian countries, need to be considered to improve Indonesia's attractiveness and competitiveness.
Indonesia offered tax holidays to attract foreign investments before 1984.
The new tax law gives special facilities for investment and business expansion only to those directed to least developed eastern areas and to export-oriented companies. (hen)