Govt to boost tax revenue to 16% of GDP by 2004

JAKARTA (JP): Minister of Finance Bambang Sudibyo said on Tuesday that tax revenue must be increased to 16 percent of gross domestic product (GDP) by 2004 from the 11.1 percent estimate for 2000 to allow the state budget deficit to be cut down to between 1 percent and 2 percent of GDP by 2003.

Bambang said that overall state revenue was projected to increase to 17.9 percent of GDP from 16.8 percent of GDP forecast for this year.

He said that a low budget deficit was crucial to ensure a healthy fiscal policy critical to help accelerate the country's economic recovery.

"In relation to that, an important step that needs to be taken is to raise tax revenue ... including improving the tax regulations," he told the House of Representatives during a deliberation of five new tax bills or amendments on existing tax regulations.

The state budget deficit for 2000 is estimated at 4.8 percent of GDP.

The new tax bills proposed by the government included amendments on tax mechanism, income tax, value added tax, sales on luxurious goods, land and building tax and the issuance of distressed warrant.

Among of the changes in the tax rulings include a leeway for the government to be allowed to provide tax breaks to encourage more corporate debt restructuring deals.

The special tax relief includes a tax postponement, installment and limited rate reduction due to cancellation of indebtedness, debt to asset swap, debt to equity swap, or temporary transfer to a special institution set up by the government.

The government also proposed that the tax structure be divided into individual tax and corporate tax.

For corporate tax, a 10 percent tax rate is imposed on income of up to Rp 50 million, 15 percent on income between Rp 50 million and Rp 100 million and 30 percent on income of more than Rp 100 million.

For individual tax, a 10 percent tax rate is imposed on income of up to Rp 50 million, 15 percent on income between Rp 50 million and Rp 100 million, 25 percent on income between Rp 100 million and Rp 200 million and 35 percent on income of above Rp 200 million.

Under the current tax regulations, the same structure for individuals also applies for the corporate sector. The current tax rate is 10 percent for income of up to Rp 25 million, 15 percent for income between Rp 25 million and Rp 50 million and 30 percent for income of above Rp 50 million.

The government also proposed tax incentives to attract new investments.

The incentives to be provided are in the form of an investment allowance of up to 30 percent within six years (5 percent each year); accelerated depreciation; loss carried forward up to 10 years; and a special 10 percent withholding tax rate on dividends derived by foreign shareholders.

This implicates that tax holidays or tax borne by the government would no longer be available.

Under the proposed amendments, the definition of tax is also modified so that it would cover social and political organizations and collective investment contracts.

The nontaxable status of foreign diplomats and international organizations is limited only to those who fulfill certain criteria.

Foreign exchange gains or losses are taxable on a net basis, after taking into account exchange losses or gains in the same year.

Exemption on intercorporate dividends at shareholder level to avoid double taxation is available only for corporate resident taxpayers and cooperatives after meeting certain requirements.(rei)