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)