Lower tax rates won't hurt tax revenues: Mar'ie
JAKARTA (JP): Finance Minister Mar'ie Muhammad expressed on Saturday that the proposed cut in income tax rates will not cause a downfall in the state tax revenues.
Speaking during a plenary session of the House of Representatives (DPR), the minister said that the possible drop in the state tax revenues could be overcome through a more intensive tax collection system.
"In the short run, the cut might cause a drop in the income tax receipts. However, a fall in total tax revenues is unlikely," he said in his reply to House members' queries about the government's four tax bills.
Mar'ie said that expanding investigations of tax evaders, coupled by stronger law enforcement, would offset the possible fall in the income tax receipts.
"The cut in the tax rates will not, therefore, change the government's tax receipt target," he said, referring to the government's projection of an annual 17.3 percent increase in tax revenues in the present sixth Five Year Development Plan (Repelita VI) period.
The four tax bills will amend the existing four tax laws on general tax provisions and procedures, income tax, value added tax (VAT) on goods and services and sales tax on luxury goods as well as property to strengthen competitive edges of the domestic economy and to promote fairness in tax collection.
Cut
One of breakthroughs in the new tax draft is the significant cut in income tax. Rates will be lowered to between 10 percent and 30 percent from between 15 percent and 35 percent at present.
The new tax bill also expands the income tax brackets to four from three at present.
The government proposes a cut in income tax rates to 10 percent for the lowest income bracket of up to Rp 25 million ((US$119,000) per annum. The new rate for incomes between Rp 25 million and Rp 50 million is set at 15 percent, for between Rp 50 million and Rp 75 million at 20 percent and for incomes above Rp 75 million at 30 percent.
Under the present tax law, the rate of the income tax for the lowest income bracket of up to 10 million is 15 percent, for between Rp 10 million and Rp 50 million is 25 percent and for above Rp 50 million is 35 percent.
The bill also raises the tax exempt income both to single and married taxpayers.
Another important aspect of the tax bill is the introduction of a number of tax incentives to investors engaged in priority business sectors and those operating in frontier areas.
The strengthening of the post-audit system is also an important facet of the proposed tax amendment.
The House's members called the government in a plenary session early last week to adopt a more effective system in expanding tax bases so that the drop in the income tax rates will not jeopardize efforts in lessening the foreign aid dominance in the state budget.
Answering the House members' inquiries about the government's proposal to empower tax officials to impound assets of taxpayers believed to have evaded taxes, Mar'ie said that such a measure will be the last alternative in the collection of tax.
"The confiscation of assets will only be carried out with those who evade tax payments by, for example, hiding their wealth," he said.
The minister also defended a plan to establish an independent court to settle tax disputes between the government and taxpayers.
The establishment of such a tax court is considered essential in settling tax disputes, which have increased in recent years in line with the rapid expansion of tax collection, the minister said.
"Settling tax disputes in a special court will be more effective," he said.(hen)