Govt to alter taxes, tax mutual funds

Rendi A. Witular, The Jakarta Post, Jakarta

The Directorate General of Taxation has proposed a revision to the country's tax rate structure and an imposition of tax on income gains from mutual fund investments.

The proposal is contained in the amended tax law, the draft of which has been completed by the tax office and is to be submitted to the House of Representatives for deliberation next month.

According to the amended Income Tax Law No. 17/2000, a copy of which was made available to The Jakarta Post, corporate and institutional income taxes will be pegged at 28 percent; they are 10 percent to 30 percent under the existing law.

Income tax rate is currently calculated based on a company's or institution's revenue. For example, an income of up to Rp 25 million (US$2,997) is subject to a 10 percent tax, while an income of over Rp 100 million is subject to 30 percent.

The tax office is also planning to raise the minimum taxable income for individual taxpayers to Rp 50 million with a tax rate of 10 percent, from the current Rp 25 million with a rate of 5 percent. The highest individual income tax rate will be 35 percent.

According to the draft, however the highest income tax rate applied to corporations or institutions may be reduced to 25 percent while individual income tax rates may be reduced to 30 percent through a government regulation.

The tax directorate previously said the policy was aimed at simplifying the personal income tax system and broadening the taxpayers' base.

In the amended tax law, the government will also scrap tax incentives for the mutual funds sector by imposing income tax on interest revenues from bonds. The tax break facility was the main reason behind last year's boom in the local mutual funds sector.

Under the existing law, interest gained from mutual funds in bonds is not subject to income tax. The facility is valid only for mutual funds during the first five years of existence.

However, according to Wahyu K. Tumakaka, head of tax planning at the tax directorate, most mutual fund companies had misused the facility by evading taxes when the incentive period expired and thus incurred losses in state tax revenues.

He explained that the incentive was aimed at helping middle- income households to invest in the domestic capital market, but that current investors did not hail from the middle-income bracket and were wealthy investors seeking to evade taxes.

Aside from completing the amended income tax law, the directorate has also finished drafting General Regulations and Procedures of Taxation No. 16/2000, and Value-Added Tax on Goods and Services and Sales Tax on Luxury Goods Law No. 18/2000.

According to the drafts, the current 10 percent value-added tax (VAT) will be maintained, but gold and parking lot services will now be subject to VAT.

The amendments are part of the government's key economic reform measures after graduating from the International Monetary Fund bailout program at the end of 2003.

However, the draft laws on income tax and value-added tax are far from those promises Minister of Finance Boediono previously made to businessmen.

Boediono once said that the amended law would include the elimination of assorted luxury taxes and exemption of certain strategic commodities from tax; but these are not reflected in the draft laws.

Key points in the draft laws

* Individual taxpayers who earn an income of more than Rp 50 million are subject to a 10 percent income tax; between Rp 50 million and Rp 100 million, to 15 percent; between Rp 100 million and Rp 200 million, to 25 percent; and above Rp 200 million, 35 percent

* Non-resident taxpayers owning a warehouse that functions beyond the storage and display of goods is subject to income tax

* Gains from a transfer of rights for exploration and exploitation of a mining concession is subject to income tax

* Grants are subject to income tax

* Reserve funds for reclamation of mining operations are to be included in income tax calculations

* Income tax for small and medium enterprises is set at 10 percent

* The Director General of Taxation has the authority to decide which parties are subject to income tax for asset or equity transactions, and if there has been an irregularity during the transaction