Govt will not raise tax rates, senior official says
Govt will not raise tax rates, senior official says
The Jakarta Post, Jakarta
Director General of Taxation Hadi Purnomo said the government
would not raise tax rates next year despite the higher tax
revenue target set by the 2004 state budget draft.
Hadi said the tax office would focus more on enforcing tax
compliance.
"Tax rates will not be increased. We'll focus on increasing
tax compliance by 30 percent to around 40 percent," he told
reporters on Saturday on the sidelines of Independence Day
ceremony at the directorate.
Hadi claimed that the tax office had carried out a number of
measures in the past year to improve tax administration which
could help increase compliance and collection.
The government last week unveiled the 2004 state budget draft
in which tax revenue would be increased by 6.6 percent to Rp
271.02 trillion to finance next year's budget of around Rp 368.80
trillion.
Around 49.1 percent of the tax revenue target would come from
income tax, 31.8 percent from value added tax (VAT) and luxury
taxes, and the remainder from other taxes.
The tax revenue target represents a higher tax ratio of 13.5
percent of gross domestic product (GDP) compared to this year's
tax ratio estimate of 13.1 percent of GDP.
In the past couple of years, the government has been relying
more on tax revenues to support the country's fiscal
consolidation process (reducing the budget deficit and debt
levels) because of the very limited room available for cutting
down on spending in other areas.
Analysts have said that the country's tax ratio was still
relatively low compared to the ratio in other neighboring
countries which ranges between 14-15 percent.
They said that to boost tax collection, the most effective way
would be through improving the tax administration side rather
than through increasing tax rates.
Enforcement is seen as a serious problem, especially with
corporate and personal income tax where many people simply claim
no income.
One study showed that the ratio of actual to potential
revenues collected in this country varied between 50 percent and
85 percent.
Among the measures already taken by the directorate of
taxation to improve tax administration is a plan to introduce a
special office called the Large Taxpayers Office (LTO), which
hopefully will improve the tax payment system, strengthen the
audit system and intensify tax arrears collection.
The LTO, which has been established but is not yet
operational, is mandated to collect taxes from big businesses.
The tax office plans to open more LTOs, including provincial
branches.
The tax office has recently been empowered to enable it to put
recalcitrant taxpayers in jail without a court trial.
Some analysts, however, have suggested that the government
could increase the current 10 percent VAT rate by between 1-2
percentage points. They also suggested a raise in the tax rate
for alcohol and tobacco, although acknowledging that the extra
collection from those would be relatively small compared to
improved tax administration.
Box
Rising tax revenue
collection
Year Revenue
2000 Rp 101.44t*
2001 Rp 179.89t
2002 Rp 219.63t
2003 Rp 254.14t
2004 Rp 271.02t**
* April-December 2000, the start of the new
calender year system (previously the budget
was based on fiscal year)
* Forecast