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)