Income tax gain likely to fall short of target

JAKARTA (JP): State revenues from tax receipts might be Rp 2 trillion (US$238 million) to Rp 3 trillion less than the initial target of Rp 44.1 trillion due to the slower than expected pace of the economic recovery, the director general of tax Machfud Sidik said here on Thursday.

Machfud said that the shortfall could not be avoided because many business activities had not recovered as expected.

"We hope these figures will be the maximum shortfall," Machfud told reporters during a break from discussions on the new tax laws, organized by the University of Indonesia's administration department.

He said that from April to July 22, his office only collected Rp 16.3 trillion in income tax revenue, which had been projected to reach 44.1 trillion during this transitional fiscal year, from April to December.

He said that some of the shortfall would be attributed to "loss carried forward" provisions given to corporations. "It means that companies who suffered losses in 1998, don't have to pay taxes in 1999, even though they make profits in the year," he explained.

Machfud added that the exemption was valid for five years and even 10 years for companies operating in certain sectors.

Despite the shortfall in income tax revenues, Machfud was optimistic that total tax revenues would exceed the target of Rp 85.2 trillion due higher prices for oil and exports.

As of August 23 some 55 percent of the total tax revenue target had already been collected he said.

"We might see a surplus of between Rp 6 trillion and Rp 7 trillion in this year's tax revenue," he said.

Machfud attributed the surplus to greater oil and gas taxes, expected to be well above the initial target of Rp 10 trillion due to higher crude oil prices.

Forecasts for the 2000 state budget were based on oil prices of $20 per barrel, while the average price realized thus far has been $28 per barrel.

The government said on Tuesday it was expecting a windfall of Rp 11 trillion from taxes on oil and gas.

From this year's total budgeted tax receipts, Rp 54.2 trillion was attributed to income tax, including from oil and gas sectors.

Machfud said that income tax revenues depended too much on the corporate sector.

"In the long term, I intend to build a stronger base of individual income tax payers," he said.

He has said that out of approximately 20 million potential private taxpayers, only 1.3 million were registered with his office.

Separately, director for income taxes, Gunadi attributed the lower than expected income tax revenue to the drop in interest rates on bank deposits.

This, he said, had made savings in banks unattractive and led people to withdraw their money from bank deposits.

"However, the lower income tax base is compensated by the increase in consumer spending, which then raises value added tax revenue," Gunadi explained.

According to him, when people withdrew their deposits, they spent the money to buy new cars and other products.

Referring to the meager realization of Rp 16.3 trillion in income tax revenue, he responded that people tend to pay their taxes at the end of a fiscal year.

"That was March in previous years, but December this year," he said.

Gunadi said that in these months, income tax revenue could reach three times higher than in any other month of the fiscal year. (bkm)