In a bid to amend the country's drastic ratio of registered tax payers to eligible tax payers, the tax office will impose fines and prison sentences upon those who fail to apply for tax identification numbers (NPWP) by the end of the year.
Under its so called sunset policy, the Directorate General of Taxation requires that eligible taxpayers apply for NPWPs by Dec. 31, 2008.
Those who apply before the deadline will be exempt from paying all outstanding taxes from previous years.
Indonesia currently has only about 6 million registered taxpayers, compared to its estimated 40 million eligable taxpayers.
"To encourage individual taxpayers applying for tax numbers, there will be a fine of 20 percent of their income tax, and a 100 percent fine of article 22 and article 23 in the income tax bill (for those failing to register in time)," Director General of Taxation Darmin Nasution told a press conference Monday.
Article 22 comprises taxes imposed on goods exchanges, imports and other business activities. Article 23 comprises taxes on dividend payments, interests, royalties and services.
Under article 22, the tax office will impose income tax upon sellers of luxurious goods, including luxury apartments and condominiums, expensive cars, private jets and private yachts.
Under the current tax law, only buyers of such goods are subject to the taxes.
Lawmaker Melchias Markus Mekeng, who is chairman of the working committee for the income tax bill, said earlier houses priced above Rp 2 billion (US$218.53 million) were defined as luxuries, as were diamonds bought for more than Rp 1 billion and cars above Rp 1 billion.
Those who fail to meet the deadline will risk a minimum 6-month jail sentence or a fine of double their outstanding tax payments.
However, the directorate general of taxation has also worked into the tax bill some positive incentives for potential taxpayers, including income tax cuts for institutions and individuals, which are hoped to increase Indonesia's competitiveness compared to other Southeast Asian countries.
"For example, Malaysia sets the income tax rate for institutions at between 20 percent and 27 percent; Singapore sets an 18 percent rate," Darmin said.
In the income tax bill, which will be passed in August, Indonesia sets the income tax rate for institutions at 28 percent in 2009 and 25 percent in 2010.
Businesses run by individuals will have to pay 0.75 percent tax on their gross revenues, down from the current 2 percent.
The tax office will also raise the taxable income threshold to Rp 15.84 million from Rp 15.84 million, or by Rp 1.32 million per month.
"The comparison between the taxable income threshold and per capita income reaches 72.9 percent, far higher than in other nations, such as the Philippines' 13.8 percent, Malaysia's 17.78 percent and China's 5.7 percent," Darmin said.
Income tax rates for individuals will be divided into four categories: People earning up to Rp 50 million per year will pay 5 percent tax; those earning between Rp 50 million and Rp 250 million will pay 15 percent; those between Rp 250 million and Rp 500 million will pay 25 percent; and those earning more than Rp 500 million will pay 30 percent.
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