Govt announces changes in capital market tax system

Govt announces changes in capital market tax system

JAKARTA (JP): The tax collection on stock trading activities
will be replaced with a single rate of 0.1 percent of the gross
transaction value beginning next year.

The change in the capital market tax is stipulated in one of
28 rulings on the implementation of the new tax laws which will
be enforced in January.

Tax Director General Fuad Bawazier said here yesterday that
the change will not only simplify the tax collection procedure
but will also give more incentives to large-scale investors.

"The large-scale investors will pay less tax under the new
system," he said when announcing the rulings for the
implementation of the new tax laws.

Fuad, however, said that the tax on the sales of shares owned
by founders, except those owned by venture capital companies,
will have an additional rate of five percent.

"Founders will have to pay a 5.1 percent tax if they sell
their shares," he told newsmen of the higher tax rate that
founders have to pay when selling their shares.

The present capital market tax is based on capital gains, with
tariff ranging between 15, 25 and 35 percent, depending on the
amount of the gains.

The capital market tax will be collected by appointed
officials of stock exchange companies where transactions take
place, he said.

Fuad said that the 28 rulings are part of around 100
implementing rulings to be issued by the government to clarify
unstipulated articles in the new tax laws.

The new tax laws, comprising of laws on income tax, value
added tax, sales tax on luxury goods and general tax provision
and procedures, were approved by the House of Representatives
(DPR) in November. But the enforcement of the laws need
implementing rulings as many of the articles still need
specification.

The new tax law lowers the range of the income tax rate to 10,
20 and 30 percent from 15, 25 and 35 percent at present.

Other significant subjects of the implementing rulings also
include the imposition of a five percent tax on incomes procured
from the sales of properties with transaction value of above Rp
60 million (US$2,8000).

That ruling, however, excludes the transfer of properties to
government for the construction of public utilities and the
transfer of properties to non-profit organizations and to a
relative within the single stage of a family descent.

Prizes in all forms of rewards obtained through lotteries will
be also deducted from a 20 percent tax under the implementing
rulings.

Fuad said that the rulings also maintain the tariff range of
the sales tax on luxury goods at 10 to 35 percent instead of 10
to 50 percent as stipulated in the new tax laws.

The rulings widen the definition of luxury goods to simplify
the collection procedures, he said, adding that new items, which
fall in the category of luxury goods such as luxury housings and
condominiums.

He said that the sales tax tariff of some of goods considered
luxurious such as soft drinks will be reduced to 10 percent from
20 percent at present under the new tax law.

In addition, certain goods such as hand telephones will no
longer be categorized as luxurious commodities as many of them
have been widely used for productive activities.

Those kinds of goods, therefore, will no longer be subject to
the sales tax on luxury goods, Fuad said.

The introduction of tax on premiums paid to foreign insurance
and reinsurance companies is also another subject stipulated in
the tax implementing rulings.

Fuad said that the payment of insurance and reinsurance
premiums to foreign insurance companies are subject to a 20
percent tax deduction of the estimate net income.

The estimated net income of the plicy holder is amounting to
around 50 percent of the premiums paid to a foreign insurance
broker or firm, the estimated net income of the insurance firm is
10 percent of premiums paid to a foreign insurance brokers or to
a foreign insurance company, while that of the reinsurance firm
is five percent of the premiums paid paid to a foreign
reinsurance company.

Fuad said that the tax deduction on the premiums paid to
foreign insurance companies is urgently needed to curb the
insurance premium flight.

"It is also an important move to anticipate the globalization
of the insurance services," he said, adding that the introduction
of the premium tax will help local insurance companies to compete
with foreign insurance in the tighter market. (hen)