Income tax law amended
Income tax law amended
JAKARTA (JP): Middle-income individual taxpayers will bear a
lighter tax burden, regional administrations will receive 20
percent of individual income tax receipts and luxury sales taxes
can be raised to a maximum of 75 percent, according to amendments
to five tax laws approved by the House of Representatives on
Monday.
The current income tax law applies the highest rate of 30
percent to individual taxpayers with annual taxable income in
excess of Rp 50 million.
Under the amended income tax law, annual taxable income of
between more than Rp 50 million and Rp 100 million will be
subject only to a rate of 15 percent, and the highest rate of 35
percent will be applied to taxable income in excess of Rp 200
million.
These changes are part of the amendments to the 1983 income
tax law, one of five tax laws amended on Monday by the House
after more than a month of deliberations. The majority of the 10
factions in the House welcomed the amendments as a fairer
distribution of the tax burden.
The other four tax laws amended were the laws on value added
tax and luxury sales tax, on general rules and procedures of
taxation, on tax collection by distress warrant and on the
transfer tax on land and buildings.
Minister of Finance Bambang Soedibyo, who represented the
government at the House plenary session, said the amendments were
designed to broaden the tax base, improve tax administration and
enhance a fairer distribution of the tax burden.
The amended income tax law differentiates the income tax
brackets and income tax rate structure for individual and
corporate taxpayers, which under the current law are the same.
Individual income tax brackets will be broadened from three to
five, but the number of corporate income tax brackets will remain
at three.
Based on the amended law, the income tax rate for individual
taxpayers will be as follows:
* 5 percent for annual taxable income of up to 25 million
(US$2,800 at the current foreign exchange rate).
* 10 percent for annual taxable income of between more than Rp
25 million and Rp 50 million.
* 15 percent for annual taxable income of between more than 50
million and Rp 100 million.
* 25 percent for annual taxable income of between more than Rp
100 million and Rp 200 million.
* 35 percent for annual taxable income in excess of Rp 200
million.
Presently, taxable income of up to Rp 25 million is subject to
10 percent tax, taxable income of between more than Rp 25 million
and Rp 50 million is subject to 15 percent tax and taxable income
in excess of Rp 50 million to 30 percent. These same rates also
apply to corporate taxable income.
Corporate income tax rates under the amended law will consist
of only three levels, as follows:
* 10 percent for annual taxable income of up to 50 million.
* 15 percent for annual taxable income of between more than Rp
50 million and Rp 100 million.
* 30 percent for annual taxable income in excess of Rp 100
million.
Fairness
Legislators praised the wider range of tax rates for
individual taxable income, saying it reflected a greater sense of
fairness.
"This income tax structure reflects a higher sense of justice
compared to the current three tax layers," the Indonesian
Democratic Party of Struggle (PDI Perjuangan) faction stated in
its final opinion at the plenary session.
The Golkar faction also welcomed the new tax rate structure
and argued that though the rates seemed lower for certain income
brackets, the bottom line would still be a greater amount of tax
revenue for the government.
The amended income tax law also will extend the categories of
corporate (permanent establishment) income tax payers to include
such nonprofit organizations as social and political
organizations and social-oriented foundations.
The amendments also provide tax incentives for businesses in
the form of tax allowances, accelerated depreciation, carryover
of loss (for compensation) for up to 10 years and for corporate
debtors which restructure their debts under the government-
sponsored Jakarta Initiative.
"These incentives will help facilitate debt restructuring,
thereby allowing indebted companies to resume operations at full
capacity," the PDI Perjuangan faction noted.
In support of the decentralization of political and fiscal
power, the amended income tax law will provide 20 percent of
individual tax receipts to the regions. At present, all revenues
from income tax, value added tax and luxury sales tax go to the
central government.
The Golkar faction noted that this revenue sharing would
encourage local administrations to woo investors.
Under the amendments to the law on general rules and
procedures of taxation, individual and corporate taxpayers facing
severe cash-flow problems will be allowed to defer their tax
payments for one year.
Other amendments to the law include the simplification of the
procedures for the refund of excess income tax and value added
tax payments.
The procedures for tax collection by distress warrant will be
strengthened to raise tax compliance.
The amendments to the law on value added tax and luxury sales
tax increase the highest rate of luxury sales tax from 50 percent
to 75 percent.
"We expect a higher level of tax compliance, hence larger tax
receipts," Bambang said about the amendments.
He hoped the government's tax receipts, which now amount only
to as high as 12 percent of gross domestic product, would
increase from 11 percent at present to 12 percent by 2001 and 13
percent by 2003. (bkm)