New rulings on tax laws announced

New rulings on tax laws announced

JAKARTA (JP): The government issued here yesterday 18 more
rulings regarding the new tax laws, including a provision that
will significantly reduce the tax rate applied to corporate
interest earnings.

Corporate taxpayers are subject only to a final tax of 15
percent on any earnings obtained from savings, time deposits or
Bank Indonesia Certificates, according to one of the rulings.

Tax Director General Fuad Bawazier said that the new tax on
interest income is expected to stimulate fund mobilization in
the local banking system and to curb capital flight.

Previously, the 15 percent tax on interest earnings was only
imposed on individuals and social organizations, while business
institutions were subject to tariffs of 15, 25 and 35 percent as
stipulated in article 17 of the old income tax law.

"The new tax on interest earnings is another incentive for
business institutions," Fuad told newsmen at a press briefing,
which was also attended by Trenggono Purwosuprodjo, the chairman
of the Federation of Private Domestic Banks (Perbanas), and C.
Harinowo, the chief of the money market division of Bank
Indonesia, the central bank.

Trenggono said that the new tax system will make savings and
time deposits in local banks much more attractive than ever.

"Many people have invested their money in overseas banks to
partly evade tax payment," he said, adding that the new fiscal
measure will also effectively curb capital flight as depositors
will not only have higher interest rates but also pay less tax
when depositing money in local banks.

The new tax on interest earnings is stipulated in Presidential
Decree No. 51/1994, one of the 18 rulings issued yesterday that will
affect the new income tax laws.

Last week, the government issued 28 similar rulings, including
nine presidential decrees and 19 ministerial decrees.

Overseas

Fuad said the new tax on interest incomes will also be imposed on
interest earnings from savings or time deposits in overseas banks
placed through an Indonesian bank or a representative of a foreign
bank.

The rate of the interest earnings obtained by non-residents from
banks operating in Indonesia is set at 20 percent or at rates made
under bilateral tax treaties.

Interest earnings of non-residents running permanent business
establishments in the country are, however, subject to the 15
percent tax rate, the same rate imposed on resident taxpayers.

The interest income tax payments for residents and non-residents
are all final, preventing them from being credited to the income tax
that must be paid during the taxable year.

Interest earnings obtained from savings and deposits placed
directly in overseas banks without passing through their local
branches, and income from other business activities should be
included in the total incomes during the same tax year, according to
Decree No. 640.KMK.04/1994 of the Minister of Finance.

However, losses from overseas business activities cannot be
incorporated into taxable income.

The new income tax rates are 10 percent for the income bracket of
up to Rp 25 million, 15 percent for that above Rp 25 million to Rp
50 million and 30 percent for the income of over Rp 50 million.

The other 17 rulings issued yesterday are in the form of
ministerial decrees, some of which cover provisions on the use of
book values on the transfer of assets in mergers, business
restructuring and expansion activities, a new format in calculating
net income of non-resident taxpayers involved in trade, shipping and
air transportation in the country.

Banks or companies that are planning an initial public offering
(IPO) of shares are allowed to transfer their assets to affiliated
firms by using their book values if the transfer of the assets is
made within the framework of consolidation, mergers or expansion,
according to Decree No. 637/KMK/.04/1994 of the Minister of Finance.

Fuad explained that the use of book values will encourage mergers
between banks and encourage companies to go public.

"Previously, banks had to pay high taxes when merging due to big
difference between the market price and the book value of their
assets," he said.

The net income of non-residents operating a trade representative
office in Indonesia is set at one percent of the gross export value,
the revenue received from the sales of goods to Indonesian
residents, according to the Decree No. 634/KMK.04/1994 of the
Minister of Finance, while the tax payment is 0.44 percent of the
gross export value and final.

According to Decree No. 632/KMK.04/1994 of the Minister of
Finance, net incomes of non-residents involved in sea and air
transportation activities for international routes are fixed at six
percent of the gross revenue, as compared to five percent
previously. The tax payment is final and the rate is set at 2.64
percent of the gross revenue.

Fuad said that the standardization of the formulas in fixing the
net incomes is important in determining the taxable incomes of
"special" taxpayers.(hen)