New income tax target viewed as unrealistic
JAKARTA (JP): The government's new income tax target involving an increase in revenue of more than 57 percent in the 1999/2000 draft budget amid continuing economic hardships is seen as unrealistic by economists.
Raden Pardede, a senior economist at PT Danareksa Securities, said on Wednesday that the income tax target was too optimistic in a country plagued by economic contraction.
"The 57 percent increase is unbelievable. A 20 percent increase is more acceptable," Raden told The Jakarta Post.
Sri Mulyani Indrawati from the University of Indonesia agreed and said that the targeted Rp 42.63 trillion (US$5.7 billion) in income tax revenue would be difficult to realize.
"The revenue from income tax this fiscal year was big enough because of the large contribution from income tax on bank deposits. This is now difficult to obtain because interest rates have started to drop," Sri said.
The benchmark Bank Indonesia promissory note (SBI) interest rate was boosted to as high as 70 percent per annum in August to help curb inflation and stabilize the exchange rate of the rupiah against the U.S. dollar.
But the rate has now dropped to around 35 percent following positive developments in the currency and the inflation rate.
Besides falling interest rates, capital flight would also reduce potential revenues from tax on bank deposit interest income, said Bomer Pasaribu, chairman of the Center for Labor and Development Studies.
"The government expects too much from tax on bank deposit interest income, forgetting that in the current period of uncertainties, big money would not go to local national banks but to Singapore and other safe countries," he said.
President B.J. Habibie on Tuesday unveiled the draft of the 1999/2000 State Budget, in which out of the Rp 140.80 trillion in domestic revenues, more than 50 percent will be derived from income tax and value-added tax.
Revenue from income tax is set at Rp 40.63 trillion, a 57.2 percent increase from the Rp 25.85 trillion target set in the current 1998/1999 budget.
Finance Minister Bambang Subianto expected the 15 percent income tax from bank time-deposits interest income to continue to be the major contributor of income tax revenue.
"We will just have to work hard to achieve the target," he told reporters, following Habibie's presentation.
He declined to give details.
Bomer, expressing skepticism, said: "That's totally over- optimistic. It is impossible to reach that target at a time when we are suffering our worst economic crisis in decades where corporate income is almost nil."
The economy is foreseen "growing" by zero percent in the 1999/2000 fiscal year, which Habibie considered a condition still far from normal.
Raden noted that the target for value-added tax and non-tax revenue from dividends of state-owned companies and proceeds from their privatization was also too optimistic.
The government expects to collect Rp 34.7 trillion from value- added and luxury taxes for the 1999/2000 fiscal year's budget, a 20 percent increase from the current budget.
The government, meanwhile, has set a target of income from non-tax revenues of Rp 25.8 trillion, a 3.2 percent drop from this year's budget.
Raden, however, was surprised that the government has set a lower foreign revenue target both in the form of program loans and project loans.
Foreign-derived revenues are set at Rp 77.40 trillion, which is 32.5 percent lower than the figure in the current budget.
Raden suspected that the government had deliberately set a lower foreign revenue target to balance the overly optimistic target it has for tax revenues.
The government, Raden said, could draw on additional foreign loan sourcing like the Miyazawa Plan and the International Development Assistance, which is now available to the country as it has plunged into the poor nation category.
Thus, when the government is able to draw on larger foreign loans, these could be used to compensate for the possible lower realization of domestic revenues, especially from tax sources, he said. (rei/rid)