Government asked to be flexible on tax policy
By Berni K. Moestafa
JAKARTA (JP): Legislators on Friday called upon the government to show willingness to review recent regulations that raised income taxes on interests from bank time deposit, and imposed value added taxes on agriculture and animal husbandry products, saying that the policies lacked adequate publicity.
Legislators Abdullah Zainie and Faisal Baasir said the government must show flexibility if the need arises to review the recent tax regulation on public demands.
They told The Jakarta Post that the government should adjust or postpone the regulations if they harmed the public interests.
"I am disappointed to hear that even the minister for agriculture is not aware of the regulation, and that he, in fact, is against it," said Abdullah, who is the deputy chairman for state budgeting of the House of Representatives' Commission IX, which oversees financial affairs.
Minister of Agriculture Bungaran Saragih was quoted by local media as saying that he rejected the new tax regulations, as it harmed the local agriculture and animal husbandry industry.
Abdullah said the government should have first discussed such policies among the related ministries and obtained their approval, before consulting them with the House, let alone implementing the policies.
The government issued in December a set of government regulations on income tax on interests from bank time deposits, and value added taxes on agriculture and animal husbandry products. Both regulations have been effective from Jan. 1, 2001.
Under the new rulings, the income tax on interests from bank time deposits is hiked to 20 percent from 15 percent, while vegetables and animal husbandry products sold in supermarkets are charged with 10 percent value added taxes.
The Association of Private National Banks (Perbanas) criticized the income tax policy on saving deposits, saying that it would scare off bank customers.
"My colleagues and I are surprised by the new policy. Normally a policy must first be publicized before it becomes a decision," Perbanas chairman Gunarni Soeworo was quoted as saying by the daily Bisnis Indonesia.
She said a hike in income taxes on saving deposits would damage the competitiveness of the nation's banking sector.
According to her, banks abroad impose income tax on bank time deposits of 15 percent to 16 percent at most.
She warned that the new policy might trigger a capital flight, should local bank customers find it more attractive to save their money in banks abroad.
Abdullah said that the Directorate General for Taxes had proposed the policy as part of the efforts to meet the 2001 state budget tax revenue target of Rp 152.4 trillion (about US$16 billion), which is 85 percent of the state's total tax revenue this year.
He said that because of its tough target, the directorate general sought to expand the state's tax revenue base.
The regulations, he said then received approval from the House's state budgeting committee during its meeting with the Finance Ministry.
Abdullah said that when approving the policy on higher income tax on time deposits, the committee assumed banking conditions would have improved by now.
The government, he said, assumed that banks' interest rates would have grown to between 13 to 14 percent from the present 11 percent, and thereby offset the rise in income tax.
"When economic conditions improve, demand for money grows. And because banks then need more money, they must, in order to attract the money, offer higher interest rates," Abdullah explained.
He further dismissed worries that the new policy would lead to a capital flight, saying that Indonesian banks offered by far among the highest interest rates on time deposits.
Commenting on complaints by Agriculture minister Bungaran, Abdullah emphasized that value added taxes on vegetables and animal husbandry products applied only to those sold in supermarkets.
"Actually, this will help traditional markets, because their products will be cheaper than those in supermarkets," he said.
He said the policy targeted middle and upper class citizens, from whom the government expected higher tax contributions.
The budget committee, he said, had also been mulling imposing excise taxes of 20 percent on imported radial tires, but later dropped the plan because of lack of support.
Deputy chairman for banking affairs at Commission IX, Faisal said the government should not hesitate to postpone the regulations if necessary.
"If conditions indeed worsen because of the regulations, then we should be flexible enough to postpone them by three to six months," Faisal said.
According to him, the government should heed the plight of local farmers if they feel that the tax policy hurt their income.
But Director General for Taxes Machfud Sidik has said that despite last year's tax revenue surplus, Indonesia's slow economic recovery made this year's tax revenue expectation a difficult target. (bkm)