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)