Fri, 14 Oct 1994

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.


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.


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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