Govt plans cutting VAT, corporate taxes

The Jakarta Post, Jakarta

The government plans to make sweeping changes to the tax system by cutting down the value added tax (VAT) and corporate tax to help improve the country's competitiveness, Minister of Finance Boediono said on Friday.

"In the medium term, the corporate tax and VAT will be cut to improve our competitiveness with other countries. The rate now is quite high," Boediono was quoted by Antara as saying, prior to a meeting with the House of Representatives Commission IX on state budget and finance.

He said that the size of the tax cut and the timing were still being discussed and it would be adjusted to the latest development, particularly with the full implementation of the ASEAN Free Trade Area (AFTA) next year.

He said that AFTA would seriously affect trade competition among countries inside the Association of South East Asian Nations (ASEAN).

He explained that the lower tax rate would help improve the competitiveness of the country's products.

Many businessmen had previously urged the government to lower the existing corporate tax and VAT amid the current economic hardships and fiercer competition in winning markets overseas.

But the cash-strapped government for the time being has no other choice than to maintain the current tax level in a bid to collect sufficient tax revenues to help finance the state budget, which is heavily burdened with the huge cost of government bank bailout program.

There has also been calls for the government to introduce tax holiday facility to attract new foreign investments into the country.

Other regional governments have planned or launched a lower tax policy in a bid to maintain competitiveness in trade areas.