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)