The government and the House of Representatives last week finalized an amendment to the income tax law, which, when enacted next month, will cut taxes and offer incentives to businesses.
Income tax for businesses will be set at 28 percent next year, replacing the current progressive system, and will be further reduced to 25 percent at the start of 2010.
Currently, companies earning less than Rp 50 million (US$5,468) a year must pay 10 percent of that amount in income tax, those earning between Rp 50 million and Rp 100 million must pay 15 percent and those earning more than Rp 100 million must pay 30 percent.
The new arrangement will not only benefit firms with big earnings, but also micro, small and medium businesses (MSMEs), which will have their income tax slashed by 50 percent.
MSMEs are companies that earn less than Rp 50 billion a year.
The new bill also provides incentives for companies to go public as companies that list at least 40 percent of their shares on the Indonesia Stock Exchange will see their tax rate cut five percent.
Tax on dividend payments will be reduced to a maximum 10 percent from 20 percent, although finer details are still being decided by the Directorate General of Taxation.
For individuals, the bill raised the taxable income threshold to 15.86 million per year from Rp 13.2 million per year.
The amendment will come as a relief to low-income people, who on average spend 70 percent of their income on food, and who have especially suffered of late from soaring foods and commodity prices.
For a married person whose spouse is unemployed, the income threshold will be raised by Rp 1.32 million, up from the existing Rp 1.2 million. The threshold will also be raised by Rp 1.32 million for every child born in a family, up from Rp 1.2 million.
Income tax rates for individuals will be divided into four categories: People earning up to Rp 50 million per year will pay 5 percent tax, people earning between Rp 50 million and Rp 250 million will pay 15 percent, people earning between Rp 250 million and Rp 500 million will pay 25 percent and people earning more than Rp 500 million will pay 30 percent.
The bill also sees the elimination of inheritance tax, which has been the subject of much controversy.
The Directorate General of Taxation will eliminate the exit tax of Rp 1 million starting next year for registered taxpayers. The tax will be fully eliminated in 2010.
In a bid to extradite tax payment, the body has opened tax offices in malls in the city.
Changes to the income tax bill
1. Flat income tax rates for companies will be 28 percent in 2009, and decreased to 25 percent in 2010 -- a change from the current progressive system where rates range from 10 to 30 percent.
2. A 50 percent income tax rate cut for MSMEs -- to be lowered to 14 percent in 2009 and 12.5 percent in 2010.
3. Publicly-listed companies will have income tax cut by 5 percent, and by 23 percent in 2009 and 20 percent in 2010.
4. Dividend tax will be a maximum of 10 percent, down from the current 20 percent.
5. The taxable income threshold will be raised to Rp 15.86 million per year from Rp 13.2 million per year. The threshold for married tax payers will be raised to Rp 1.32 million from Rp 1.2 million.
6. Inheritance tax will be eliminated.
7. Exit tax will be eliminated for registered taxpayers in 2009, and for everyone in 2010. 8. The central bank's budget surplus will be subjected to a 28 percent tax rate starting 2009.
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