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)