Government to raise income tax rate

Government to raise income tax rate

JAKARTA (JP): The government will increase the income tax
brackets for individual taxpayers from three to four and the
highest bracket from 30 percent to 35 percent but will retain a
three-bracket tax structure for institutional (corporate)
taxpayers.

The highest tax bracket will apply to individual taxpayers
with earning over Rp 200 million (about US$28,000), according to
a draft bill amending the 1994 income tax law.

Director of income tax at the Directorate General of Taxation
I Made Gde Erata revealed here on Tuesday that the highest tax
bracket for institutional taxpayers, amounting to 30 percent,
would apply to net incomes of over Rp 100 million per annum.

The bill, which will be proposed soon to the House of
Representatives, is designed to improve fairness in tax burdens
for the various groups of individual taxpayers, Made told a
seminar.

"Unlike the currently applied tax bracket system based on the
1994 income tax law, the bill applies different tax brackets to
individuals and corporate or institutional taxpayers," Made
added.

The bill divides individual taxpayers into four brackets, from
the current three, with tax rates ranging from 10 to 35 percent.

Individuals with annual incomes of up to Rp 50 million will
pay 10 percent tax; those earning between Rp 50 million and Rp
100 million 15 percent tax; and those with incomes of between Rp
100 and Rp 200 million 30 percent and more than Rp 200 million 35
percent.

The bill retains the three-bracket income tax structure for
institutional taxpayers but raises the taxable income level for
each bracket.

Companies with net incomes of up to Rp 50 million per annum
will be subject to 10 percent tax; those with net earnings of
between Rp 50 million and Rp 100 million to 15 percent tax; and
those with net profits of over Rp 100 million to 30 percent tax.

"These proposed revisions will allow more small and medium-
sized enterprises to fall into the lowest tax bracket," Made
said.

"You can see that this bill, if it is passed into law, should
help small and medium enterprises grow faster," he added.

The current tax system applies the same three-bracket
structure to individual and institutional taxpayers with
tax rates ranging from 10 percent and 30 percent. The highest tax
bracket applies to annual income of more than Rp 50 million.

Made said the proposed amendments to the income tax law also
contained other revisions.

The bill stipulates that diplomats and other foreign delegates
will no longer be exempt from tax if they have other incomes,
such as from interest incomes from bank deposits and other
investment.

"The tax exemptions for diplomats should only cover the income
they receive as diplomats. Other income, if there is any, should
no longer be tax exempt," said Made.

The draft legislation also stipulates that tax exemption
status should no longer be granted to political parties and
foreign organizations.

To avoid under invoicing by exporters, the bill also
authorizes tax officials to assess the declared prices of goods
to be sold by an exporter to an overseas party.

"The government, assisted by public accountants and the tax
authority in the country of destination of exports will have the
power to approve or change the prices of the goods as declared by
the exporter," he said.

Made argued that exporters often under-stated the price of
their exported goods to reduce the taxes payable on them. They
could also over-state the price of the goods for other purposes.

"It depends on the exporters' hidden intentions," said Made.

Made said the proposed income tax amendment had already been
sent to the President for evaluation, after which it would be
passed on to the House for further deliberation and finally
ratification.

Made also said teams at the Directorate General of Taxation
were also preparing amendments to laws on general tax provisions
and procedures, on value added tax on goods and services and
sales tax on luxury goods.

These amendments are aimed at netting more taxpayers and
collecting more tax income for the government, which sorely needs
bigger revenuews to finance its ever expanding routine spending.

Under the 2000 draft budget currently being deliberated by the
government and the House, tax revenues for the April-December
budget year are set to reach Rp 97.8 trillion -- or 71 percent of
the total state revenues -- for the next fiscal year.

Of the total tax revenue target, the government expects to
collect Rp 53 trillion from income tax, Rp 26 trillion from value
added tax, Rp 2.9 trillion from land and building tax, Rp 9.3
trillion from excises and Rp 432 billion from other taxes. (udi)