DPR okays cuts in tax rates

DPR okays cuts in tax rates

JAKARTA (JP): The House of Representatives (DPR) finally
approved the government's four tax bills in a plenary session
yesterday with substantial changes after nearly one month of
marathon deliberations.

The tax bills, which will amend the present four laws on
income tax, property tax, value added tax (VAT) and sales tax on
luxury goods and tax procedures, offer stronger incentives to
stimulate economic activities in frontier areas.

The bills also lower the maximum income tax rate from 35
percent to 30 percent, besides maintaining the other two rates of
10 percent and 15 percent.

Surjadi, a House deputy speaker, described the four bills as a
breakthrough because they have considerably accommodated the
House members' aspirations.

"The bills not only reflect more equity but provide more
incentives to stimulate economic growth," he said during the
final deliberation of the four tax bills.

The bills, which require approval from President Soeharto for
their enactment into laws, are expected to be effected in
January.

The bill on the income tax imposes a tax rate of 10 percent on
incomes of up to Rp 25 million (US$11,500) per annum, 15 percent
on those from Rp 25 million to Rp 50 million and 30 percent on
those over Rp 50 million.

Fairness

Markus Wauran, a spokesman for the Indonesian Democratic Party
(PDI), said at yesterday's session that the new income tax rates
are more progressive and reflect more fairness.

Under the present tax law, the rate for the lowest income
bracket of up to Rp 10 million is set at 15 percent, for incomes
of from Rp 10 million to Rp 50 million at 25 percent and 35
percent for those above Rp 50 million.

The government initially proposed a tax rate of 10 percent for
the income bracket of up to Rp 25 million, 15 percent for income
levels of from Rp 25 million to Rp 50 million, 20 percent for
those from Rp 50 million to Rp 75 million and 30 percent for
those of over Rp 75 million.

The proposal was, however, rejected by all the House's four
factions during the initial deliberations on the grounds that the
proposed tariff reduction had yet to reflect the income gap of
the people and that it gave too much benefit to the middle income
group.

Novyan Kamal, the chairman of the special team assigned to
deliberate on the four tax bills, said the government finally
bowed to the House's demand to revise the proposed rates after
three days of intensive talks.

Finance Minister Mar'ie Muhammad acknowledged that the cut in
the income tax rates, designed to improve the fairness in the
distribution of income and to promote the country's business
climate, could in the short run result in a fall in the
government's tax receipts.

Mar'ie, however, said that the growth of the tax receipts will
be much higher in the next two years due to the multiplier effect
of the improvement of the business climate.

Another important aspect of the income tax bill is the
introduction of a new article allowing the revision of the
highest income tax rate to 25 percent from 30 percent.

Incentives

The income tax bill also provides stronger incentives to
companies operating in frontier areas like those in the eastern
provinces. The incentives, which will be further regulated by the
Finance Minister's decree, will include a shorter term of
depreciation and amortization, a longer period for the
compensation of loss and a lower tax rate for dividends.

In addition, the bill also allows industries to exempt their
expenses for waste treatment and human resource development from
income tax.

The property (land and building) tax bill raises the taxable
sales value of property to Rp 8 million ($3,810) from Rp 7
million at present. However, the property tax rate will be
maintained at the current level.

The tax objects of the value added tax (VAT) are, under the
new bill, no longer limited to processed products but also to a
wide range of services, including non-material assets such as
franchising.

Sales tax rates on luxury goods are raised to a range of 10
percent to 50 percent from 10 to 35 percent at present. (hen)

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