Income tax should

Income tax should
be adjusted to
promote fairness

JAKARTA (JP): Kwik Kian Gie, a noted economic analyst, wants
the government to adjust rates of both income and property taxes
to promote fairness.

Speaking at a seminar on the possible reform of the tax law,
Kwik said the present income and property taxes are not
equitable.

"The people of the low income group are still unfairly
treated," he told more than 100 executives at the seminar held by
the IBII Business School.

Speakers at the seminar, which was officially opened by
Finance Minister Mar'ie Muhammad, consisted of a number of noted
economists, including Irzan Tanjung of the University of
Indonesia, Hussein Kartasasmita, a former senior tax official,
and Soemarso, the chairman of the Center for Fiscal and Monetary
Studies (CFMS)

Kwik, also the vice chairman of the Indonesian Democratic
Party (PDI), said the present tax system is not just as the
people with an annual income of Rp 2 million (US$931) and those
with Rp 10 million are charged the same rate.

The present income tax is progressively set at 15 percent for
an annual income of up to Rp 10 million (US$4,760), 25 percent
for an income bracket of Rp 10 million to Rp 50 million and 35
percent for incomes of over Rp 50 million. The rates are enforced
for both individuals and corporations.

Modification

According to Kwik, the income brackets for individual
taxpayers should be modified into nine categories and their rates
should be more diversified -- from 10 percent for the lowest
income bracket to 60 percent for the people of the highest income
group.

Kwik said the lowest income bracket should be set at between
Rp 12 million and Rp 46 million with the top bracket at above Rp
10 billion (US$4.75 million).

"The proposed income bracket of above Rp 10 billion looks
strange," he said. "But believe it or not, the very rich people
in the country have an annual turnover of above Rp 10 billion,"
he added.

Kwik said that the income tax reform should be introduced only
for individuals, and that the present tax system should be
enforced only for corporate taxpayers.

He said it is not necessary to adjust the income tax rates for
corporations because the adjustment could discourage business
activities.

Kwik also suggested land and building (property) taxes be
adjusted to be fairer and more objective by introducing
progressive rates depending on the financial conditions of the
tax payers.

The property tax is set at a single rate of 0.1 percent of the
price base or the market value of the building and land.

He also suggested that a successive or heritage tax be imposed
on income or property taxpayers inherit.

"The government should also raise the untaxable income from Rp
1.72 million per annum at present to Rp 12 million," he said.

Soemarso, the chairman of the Center for Fiscal and Monetary
Studies (CFMS), said the government should consider the change in
rates in its efforts to promote the fairness of taxation.

He said that cuts in tax rates should not jeopardize the
government's efforts to increase state revenues from the tax
sector.

"There should be a trade-off. The tax incentive should be
balanced with efforts to further diversify tax bases and the tax
collection ratio," he added.(hen)