Economists and legislators greet cut in tax rates
Economists and legislators greet cut in tax rates
JAKARTA (JP): Economists and legislators greeted the new tax bills yesterday but warned the government to strengthen the capacity and skills of its tax officials to effectively enforce the new legislation.
Marie Pangestu, the chief economist of the Centre for Strategic and International Studies (CSIS), said the significant reduction in the income tax rates would undoubtedly improve the business climate.
"The cut in the income tax rates will not only encourage more foreign companies to invest in the country, but also can stimulate all segments of business activities," the economist told The Jakarta Post in comment on the four tax bills which were unveiled at the House of Representatives on Saturday.
She warned, however, that the government should continue its deregulation measures in order to further improve efficiency.
Better tax rulings are not the only factor contributing to a competitive edge, Marie said.
Commenting on the planned tax amendment, Toyokazu Shirahata, the president director of PT Nomura Indonesia, said that a big jump in new foreign investments would be one of the immediate outcomes of the proposed cuts in the tax rates.
"There is no reason for Indonesia to maintain its high income rates as the country's financial resources have markedly increased," he said.
An important breakthrough in the new income tax is the significant cut in the rates to a range of between 10 percent to 30 percent from 15 percent and 35 percent at present.
Incentives
Other important aspects of the tax bills include the possibility of granting tax incentives to investors engaged in priority business sectors and those operating in frontier areas.
The strengthening of the post audit system is also an important aspect of the proposed tax amendment.
Sjahrir, a noted economist, shared Marie's view about the tax bills, saying that the government has no choice but to reduce tax rates in order to improve the competitive edges of domestic companies.
However, he also said that the tax base should be broadened so that the cut in the tax rates will not cause a fall in state revenues.
"The income tax brackets should be expanded to more than four as proposed in the bill," he said, adding that the expansion of the income brackets would also promote fairness.
Aberson Marle Sihaloho of the Indonesian Democratic Party (PDI) concurred that limiting the tax brackets to annual incomes in excess of Rp 75 million will only benefit business conglomerates.
He argued that the proposed income tax rates did not really reflect fairness because under the four tax brackets small and medium-scale companies will have the same tax burden.
Rates
The government proposes a cut of the income tax rates to 10 percent for the lowest income bracket of up to Rp 25 million ((US$119,000) per annum. The new income tax rate for the income bracket of between Rp 25 million and Rp 50 billion is set at 15 percent, and at 20 percent for the income bracket of between Rp 50 million and Rp 75 million, while that for the income bracket of above Rp 75 million is 30 percent.
Under the present tax law, the income rate tax for the lowest income bracket of up to 10 million is 15 percent, while for the income bracket of between Rp 10 million and Rp 50 billion it is 25 percent and for that above Rp 50 million is 35 percent.
Kwik Kian Gie, a noted economist, said earlier that the present tax system does not really reflect justice because people with an annual income of Rp 2 million and those with a yearly income of Rp 10 million are charged the same rate.
According to Kwik, the income brackets should be further expanded to nine categories to cover the ranges of incomes. He also suggested that the rates should be more diversified, ranging from 10 percent for the lowest income bracket to 60 percent for the people of the highest income group.
Kwik said that the lowest income bracket should be ideally set at between Rp 12 million and Rp 46 million, while the top bracket should be set at above Rp 10 billion ($4.75 million). (team)