Government to raise tax ratio to 13.5% next year

Government to raise tax ratio to 13.5% next year

The Jakarta Post, Jakarta

The government plans to raise the country's tax ratio to 13.5
percent of gross domestic product (GDP) next year in a bid to
help secure domestic financing for the state budget, Director
General of Taxation Hadi Purnomo said on Tuesday.

"With an economic growth assumption of 4 percent to 5 percent,
the tax ratio is projected at 3.1 percent to 3.5 percent of GDP,"
he was quoted by Antara as saying.

This tax ratio target is lower than some lawmakers have been
demanding -- 4 percent of GDP. In comparison, the 2003 tax ratio
target is set at 3.1 percent of GDP.

The country's tax ratio is currently among the lowest in the
region, which analysts have said should provide greater scope for
the government to boost it.

Increasing tax revenue is crucial, particularly next year, to
secure more domestic financing for the state budget, given the
expectation of a decline in foreign financial support following
termination of the existing International Monetary Fund (IMF)
program.

Without the presence of the IMF, the country would be unable
to obtain around US$3 billion in debt rescheduling facility from
the Paris Club of creditor nations, thus creating a greater
financing gap for the state budget.

Many have said that the low tax ratio in the country is due to
corruption within the tax department, which allows big businesses
and wealthy individuals to avoid paying the correct amount of
tax.

However, Hadi dismissed such a suggestion. He said that this
was partly due to the weakness of the self-assessment tax system.

He said that, particularly for next year, it was difficult to
expect a boost in tax revenue, as businesses and economic
activities would be affected by the general election.

The government was also hoping that the large taxpayers office
launched last year could achieve its mission to ensure large
businesses paid the correct amount of tax.

The government is also planning to issue a new regulation that
would allow the tax office to sent tax evaders to prison for a
maximum of one year without trial.

The move comes amid the government's growing concern over the
rising amount of tax arrears.

Tax arrears payable over the past 10 years have reached Rp 17
trillion (US$1.9 billion), according to the directorate's data.

Elsewhere, Hadi is optimistic that the 2003 tax revenue target
of Rp 213 trillion can be met.

As of June 15, 2003, the tax office had been able to collect
some Rp 87.4 trillion in tax revenue, or around 41 percent of the
targeted amount.

The amount consisted of Rp 42 trillion in non-oil and gas
income tax, Rp 10 trillion in oil and gas income tax, Rp 28
trillion in value-added tax, Rp 3 trillion in land and building
tax and Rp 4.4 trillion in other taxes.