Cut in tax rates will not affect state revenue, says economist
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)