New tax laws: Govt aims to balance revenue, business competitiveness
New tax laws: Govt aims to balance revenue, business competitiveness
Rendi A. Witular, The Jakarta Post/Jakarta
With the primary aim of boosting investment in the private
sector, the government has drafted a fairly sound and competitive
value-added tax (VAT) and income tax system in its recently
completed draft revision of the tax laws, according to an
official.
Head of the tax law revision team, I Made Gde Erata, told The
Jakarta Post the directorate had accommodated demands from the
business community for the new laws to be competitive for
businesses without harming state revenues from taxes.
"We are trying to make the laws as balanced as we can. We want
businesses to gain advantages from them, but we also want state
revenues to be sustainable. For sure, the laws are drafted to
make it (the tax system) simple," said Erata.
As reported earlier, the ministry of finance's Directorate
General of Taxation completed the revision of Law No. 18/2000 on
VAT and luxury tax, and Law No. 17 on income tax on Aug. 16,
which feature a progressive taxation system, both in term of
rates and the types of taxes levied.
According to the draft law on VAT and luxury tax, which was
made available to the Post, the government plans to scrap the VAT
in a merger of companies, as well as certain activities in the
agricultural and banking sector.
The government will also scrap the VAT on capital goods for
companies that export services, including software, franchise and
consultancy products.
The draft also shows that the government will allow companies
just starting up their businesses to pay their VAT on capital
goods in installments until after the companies commence
production.
At present, the VAT is set at 10 percent, with no changes
planned under the new draft.
Based on the 2006 state budget, the government expects to reap
Rp 126.7 trillion (US$12.67 billion) from VAT and luxury tax, up
from Rp 99.41 trillion for this year.
Meanwhile, in the income tax areas, Erata said the government
would focus more on increasing the number of taxpayers as well as
decreasing the rate of tax evasion.
Under the draft law on income tax, also made available to the
Post, taxpayers who purchase shares or assets through a special-
purpose vehicle (SPV) registered overseas will be subject to
paying income tax.
Taxpayers are also liable to the tax if they transfer their
shares or assets here to an SPV registered in a tax-haven
country.
Several prominent companies operating in Indonesia have
tried to reduce the amount of income tax they pay in the country,
or have evaded paying it altogether, by setting up SPVs overseas.
The tax directorate previously indicated that potential tax
revenue losses for the state from such practices could reach at
least US$300 million annually.
"There are several practices of evading taxes that we have
eliminated or limited in the draft laws. The financial system is
so complicated nowadays and we should keep up with it in order to
avoid potential tax revenue losses," said Erata.
Another example in the draft law aimed at limiting tax evasion
is the requirement that all contractors operating in the energy
and mining sector register themselves as permanent institutions
here in order for the government to be legally able to collect
their taxes.
At present, some foreign contractors and consultants operating
in Indonesia in the sector have refused to set up permanent
registration in order to avoid paying taxes. Based on the
prevailing law, the government can only tax companies that are
permanently registered in the country.
The proposed law also stipulates that aside from the primary
taxpayers registration number (NPWP), an individual who is in
business should have an additional registration number for his or
her other addresses.
This is to prevent businesspeople from running away to other
areas to avoid paying their taxes.
Under the state budget, next year's income tax target is set
at Rp 198.3 trillion, up from Rp 166.6 trillion this year.
Key points in the draft laws:
VAT and Luxury taxes
* Taxes on luxury goods and services will be raised up to 200
percent from the current 75 percent.
* Mining products will be subject to VAT.
* Syariah banking activities will not be subject to VAT.
* Taxable goods will be scrapped from billing if a company faces
bankruptcy.
* Public phones using coins, parking and money transfers through
the post office will be exempted from VAT.
* Asset securities will be exempted from VAT.
* Leasing activities will be exempted from VAT.
* Electricity and water will be excluded as VAT objects.
Income tax
* Departure tax will be scrapped in 2010.
* Final income tax for dividend proceeds for individual taxpayers
will be reduced from about 35 percent to 15 percent.
* Interest proceeds from government bonds will be subject to a 20
percent final tax.
* A transfer in mining concession rights, including the
geothermal sector, will be subject to tax.
* Mutual funds proceeds from bonds will be subject to tax.
* The use of telecommunication bandwidth and broadcasting will be
subject to tax.
* Scholarships, as well as aid donations for national disasters,
education and research in Indonesia will be exempted from tax.
* Certain social infrastructure will be tax exempt.
* The minimum individual income exempt from tax will be
raised from Rp 2.88 million to Rp 12 million.
* Income tax for corporations and institutions will be reduced to
a single rate of 30 percent in 2006, 28 percent in 2007 and 25
percent in 2010.
* Income tax for individuals will be set at a 35 percent maximum
for annual income above Rp 200 million, and 5 percent minimum
for annual income below Rp 50 million. The maximum rate will be
reduced to 33 percent in 2007 and 25 percent in 2010.
* Income tax for taxpayers without NPWP will be higher, between
20 percent and 100 percent compared those having NPWP.
* Investment in certain sectors and areas that are development
priorities will receive tax incentives.
* Businesses in the mining, oil, gas and geothermal sectors, as
well as in the syariah sector will be given tax incentives.
* Micro, small- and medium-scale businesses will be given tax
incentives.
Source: Directorate General of Taxation