Govt seeks major cut in income tax

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)