Govt hikes income tax on bonds to 20%

The Jakarta Post, Jakarta

The government has raised the income tax rate on bond trading to 20 percent from 15 percent, but scrapped another controversial tax regulation on bond trading after only one year.

Capital gains on bond trading will no longer be taxed at 0.03 per cent, following widespread criticism that the measure smacked of double taxing.

The revised ruling is one of six new regulations, including on the taxation of income from renting properties, on goods subject to luxury sales tax, and taxation payments for retail business owners.

"Raising the final income tax rate from 15 percent to 20 percent would equal the income tax rate imposed on earnings from term deposits and Bank Indonesia's certificate rates," a statement from the Directorate-General for Taxation said on Thursday.

It said government regulation No. 6/2002 on income tax from bonds would help promote trading on Indonesia's only bond market, the Surabaya Stock Exchange (SSX).

Last year many suspected bond trading at the SSX declined due in part to confusion over the old tax ruling. This led investors to trade outside the SSX.

The new ruling applies on bond trading at the bourse only. Unlike shares, bonds do not bear the names of their owners, so it is not necessary trade at a bourse.

Critics said the 0.03 percent capital gains tax should have been absorbed by the 15 percent income tax rate.

Income tax rates from bond trading outside the bourse were not final, and thus remain subject to further income tax rates, the statement said. The ruling is valid as of May 1, 2002.

For the income tax on earning made from renting properties, the rate has been raised to 10 percent from six percent. The ruling is also effective as of May 1, 2002.

Owners of retail businesses will now have to pay twice as much than before in income tax from their monthly sale.

The Finance Minister Decree No 84/2002 raises the monthly income tax payments to 2 percent from 1 percent for individuals in the retail sector owning more than one outlet.

On luxury sales tax, government regulation No 7/2002 exempted several items from a list of luxury goods.

The items were no longer considered as luxury goods, the statement said, citing as the only example several types of rugs. The regulation is effective as of May 1, 2002.