Govt to alter taxes, tax mutual funds

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