Fri, 26 Aug 1994

New tax draft to encourage better law enforcement

JAKARTA (JP): The government assured yesterday that the new tax bill proposed to the House of Representatives (DPR) for deliberations will improve law enforcement and broaden the tax base to increase state receipts.

"The improvement in law enforcement will consequently mean the government will strengthen both supervision over tax collection and measures against tax evaders," Director General of Taxes Fuad Bawazier told a one-day seminar on the new tax bill at the Borobudur Intercontinental Hotel here.

He expressed concern at the trend for the number of tax evaders and the amount of tax arrears throughout the country to steadily increase every year.

Fuad blamed the tax evasion and arrears on the poor management of tax officials and the lack of awareness among taxpayers on the need for compliance with the tax law, which requires self- assessment.

"We expect the DPR to adopt measures on law enforcement to improve the effectiveness of the self-assessment scheme," he said.

The tax bill, which is designed, once passed into law, to replace the existing 10-year-old law, is expected to be approved by the DPR in January next year.

Yesterday's seminar, organized by the Jakarta chapter of the Indonesian Economists' Association (ISEI), featured Bawazier as the single speaker. He presented guidelines on the draft tax law.

Senior economic analyst Anwar Nasution, the chairman of the Econit economic and trade consulting firm, Rizal Ramli, and the assistant to the coordinating minister for economy and finance, Irzan Tandjung, acted as panelists in the seminar, which was chaired by economist Sjahrir.


The seminar was a part of a two-year program sponsored by the Directorate General of Taxes, aimed at collecting input from the public for the revision of tax laws.

Bawazier, who is also chairman of ISEI's Jakarta chapter, said that the draft law will cover taxation on incomes generated by Indonesian companies from overseas operations, which are so far unreachable by the current law.

According to Bawazier, the new tax bill will also intensify the collection of withholding tax by employers.

He said the bill will also include the collection of taxes on capital gains resulted from the sales of shares on a stock market. "But I am not in the position to elaborate on the details of the tax on capital gains because all things related to the law are still under examination," he added.

Rizal suggested that the new law lower rates of taxes on incomes generated from certain business activities in eastern provinces of the country.


On the other hand, he thought that the new law should impose taxes on forestry businesses. "According to our recent study, the forestry industry can contribute tax proceeds of some $2.5 billion per year," he pointed out.

The government, under its 1994-95 budget, expects to receive Rp 34.81 trillion (US$16.01 billion) from taxes, a substantial portion of its projected total domestic revenues of Rp 59.74 trillion. The tax revenues are expected to consist of Rp 18.84 trillion from income tax, Rp 13.24 trillion from value-added tax, Rp 1.63 trillion from land and building tax and Rp 281.7 million from other taxes.

Rizal also suggested that capital gains from the sales of shares on stock exchanges be exempted from income tax in order to attract more foreign investments.

Foreign investors play an important role on the capital market because they dominate daily trading of shares.

According to a World Bank survey, Indonesia's tax ratio is the lowest in the Association of Southeast Asian Nations (ASEAN), reaching only 13 percent of its total gross domestic product (GDP). Thailand leads the association with a ratio of 17.7 percent, followed by Malaysia with 15.2 percent and the Philippines with 14 percent. (fhp)