Govt seeks major cut in income tax

JAKARTA (JP): Minister of Finance Mar'ie Muhammad sought approval from the House of Representatives (DPR) here on Saturday to significantly reduce income tax rates to a range of between 10 and 30 percent from 15-35 percent at present.

In his explanation at the House's plenary session, the minister said that the tax reduction is essential, both in promoting social justice and in strengthening competitive edges of the domestic economy.

The government proposes a cut of the income tax rates to 10 percent for the lowest income bracket of up to Rp 25 million ((US$11,500) per annum.

The minister said the new rate of income tax for the income bracket of between Rp 25 million and Rp 50 billion will be set at 15 percent, for the income bracket of between Rp 50 million and Rp 75 million at 20 percent, while any income in excess of Rp 75 million will pay taxes of 30 percent.

The income tax bill, which will amend the Income Tax Law No. 7/1983, does not only lower the tax rates but also expands the income brackets to four from three currently.

Under the present tax law, the rate of the income tax for the lowest income bracket of up to Rp 10 million is 15 percent, for the income bracket of between Rp 10 million and Rp 50 billion 25 percent and for that above Rp 50 million 35 percent.

Mar'ie said that unlike in the present income law, the proposed rates could be revised through a decree of the Minister of Finance.

"The new income tax rates will be more flexible and the 30 percent imposed on the highest income bracket could be further reduced," he said, adding that the planned income tax rates are still open to change to meet the need of the country's economy.

Highest

The present corporate income tax of 35 percent is the highest in Southeast Asian countries.

Mar'ie said that a further cut of the income tax rate for the highest income bracket (corporate) to 25 percent is quite possible in order to attract foreign investment and improve efficiency of domestic industries.

The income tax bill also seeks an increase in the tax exempt income for an individual taxpayer to Rp 1.72 million ($822) from Rp 960,000 at present. The additional tax exemption for a married taxpayer will rise to Rp 864,000 from Rp 480,000, while the additional deduction for a wife will increase to Rp 1.72 million from Rp 960,000 at present and the deduction for a child will be raised to Rp 960,000 from Rp 480,000.

Hence, the maximum amount of income deductible from the taxable income of a single taxpayer will increase from Rp 1.44 million to Rp 2.59 million and for a married taxpayer with three children (maximum) will rise from Rp 3.84 million to Rp 6.91 million.

The bill on the income tax was submitted together with three other tax bills.

Enactment

The bills, which will respectively amend the present tax laws on general tax provisions and procedures, value added tax (VAT) on goods and services and sales tax on luxury goods as well as land and building (property) tax, are expected to be enacted before the end of the year.

The tax revision is proposed to follow changes in the tax regulations of other members of the Association of Southeast Asian Nations (ASEAN) -- Brunei, the Philippines, Thailand, Singapore and Malaysia, the minister said.

Mar'ie said that the new income tax bill will also allow for the granting of tax incentives to investors, who are involved in priority business sectors and those operating in frontier areas.

Under the proposed tax amendment, companies may also receive a tax facility if they reinvest their after-tax earnings in the country, the minister said, adding such an incentive is important in encouraging investors to expand their business operations in Indonesia.

The bill also allows companies to deduct expenditures on research and human resource development from their taxable income, the minister said.(hen)