Government sticks to plan to tax foreigners' overseas income
Government sticks to plan to tax foreigners' overseas income
JAKARTA (JP): The government said on Friday it would stick to
its ruling on taxing expatriates' overseas earnings despite
concerns that the policy might impede foreign investment.
Director general of tax Machfud Sidik denied a foreign media
report that he had softened his stance over imposing income tax
on expatriates' overseas earnings.
According to media reports, Indonesia was awaiting
negotiations on tax treaties with other governments before it
would require expatriates to pay their income tax in full.
But Machfud acknowledged that his office faced difficulties in
fully imposing the tax ruling due to lack of clean personnel and
qualified data.
"It is a matter of weakness in law enforcement against
expatriates," he said, adding; "tax payers everywhere are the
same, there are naughty expatriates too."
According to him, only 20 percent of expatriates are
registered tax payers.
Based on last year's amended tax law, foreigners working or
living in Indonesia for more than 183 days in a 12-month period
must report all their income, including that of overseas income
to the local tax authority.
Machfud said that to fully comply with the ruling, the
government had to work with other countries' tax administration.
At present, he said, the government planned to revise some of
their treaties because they had become outdated.
For example, an expatriate who should pay 20 percent income
tax to the Indonesian government was only charged 10 percent
because of a treaty with another country, he explained.
But Machfud said that renegotiation of these treaties was
difficult, as some governments were protective of their tax
information.
Another problem was the prevailing bribery practices among tax
officers in Indonesia.
"In enforcing our law on them (expatriates) we must work
smart, gather accurate evidence, and not seek their mistakes," he
said.
Meanwhile, Machfud said the government decided to exempt
income taxes on interest gains from banks savings and time
deposits of up to Rp 7.5 million (about US$790) following public
protests.
The new income tax ruling on interest gains was issued to
clarify the government regulation No 131/2000 introduced on Dec.
15, in which the income tax rates on earnings from the interest
of banks savings and time deposits would be increased to 20
percent from 15 percent.
Under the regulation, all interest gains from banks savings,
time deposits, checking accounts and Bank Indonesia Certificates
are subject to 20 percent income tax.
The latest ruling which was issued on Feb. 1, stipulates that
only interest gains of over Rp 7.5 million are affected by the
regulation.
Under the new ruling, banks saving accounts of up to Rp 625
million in value, with an interest rate of 12 percent per annum,
are not only freed from the income tax hike, but have instead
become tax free.
But Machfud said he was optimistic that the target to increase
tax receipts from the interest gains to Rp 10.4 trillion this
year from Rp 2.4 trillion last year could be achieved despite the
new tax policy.
The government issued the decree, following a four-week study
on complaints that the rise in the tax rate would trigger a
capital flight.
Machfud dismissed the worries, saying that local banks offered
higher interest gains that would offset the five percent income
tax hike.
He added that a recent central bank's ruling to limit offshore
transaction further lifted bankers' fears of capital flight.
Although the regulation on the tax rate increase had become
effective as of Jan. 1, the government delayed its implementation
by one month to allow a team to evaluate the banks' complaints.
Chairman of the Association of Private National Banks
(Perbanas) Gunarni Soeworo said the association welcomed the
government's move.
"Our primary fear had been that of capital flight, but Bank
Indonesia's new regulation has helped reduce that," she said.
(bkm)