Government asked to be flexible on tax policy

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)