New tax policy on bonds still confusing: SSX

New tax policy on bonds still confusing: SSX

JAKARTA (JP): The Surabaya Stock Exchange (SSX) said on
Tuesday that the government's new tax policy on bonds was still
confusing, and that it might even lead investors to avoid
reporting their transactions on the SSX.

SSX president Anton Natakoesoemah said he needed more time to
study the new tax policy before he could inform the market
players on the policy's impact.

Anton admitted he did not fully understand the new tax policy,
saying that some items required clarification from the
government.

The SSX, he said, would meet with the director general for
taxes to seek an explanation of the new regulation.

"We also want the directorate general to meet with market
players and consult with them on the regulation. Let the market
players then draw their own conclusions," he told The Jakarta
Post.

The new tax policy is one of 41 new tax and financial policies
announced by the government on Monday.

Government Regulation No. 139/2000 on income tax on revenue
from bonds traded on the bond market, was issued on Dec. 21, and
has been effective since Jan. 1.

Under article 3 of the Regulation, domestic and foreign-based
taxpayers must pay income tax of 15 percent and 20 percent
respectively on interest earnings from bonds.

The old regulation imposed only a single rate of 15 percent on
both domestic and foreign-based taxpayers.

But, according to Anton, the second section of article 3 could
be misleading.

This section states that the amount of income tax to be
charged on revenues from capital gains, interest and or discounts
obtained by the owner of a bond at the time of a transaction on
the stock exchange is 0.03 percent of the gross transaction
value.

Based on earlier explanations by the directorate general, he
said, the imposing of 0.03 percent for each bond transaction was
meant to promote the bond market.

Although the charging of income tax on bond transactions was
new, Anton said it would not necessarily discourage bond
investors.

According to him, because the tax deduction on every bond
transaction is final, traders are no longer required to report
earnings from their bond investments in their annual tax returns.

Earnings reported in the tax returns are subject to between 5
percent and 35 percent income tax depending on the actual amount
of income.

"I see it (the tax policy) rather as an incentive for bond
investors to register their transactions at SSX, so that they do
not have to report it as taxable income in their financial
statements," Anton explained.

Unlike share transactions, where the exchange of ownership is
registered with the Jakarta Stock Exchange under names, bond
transactions can occur without registering them with the SSX,
because bonds do not bear the names of their holders.

Anton said the new tax policy would encourage investors to
register their transactions with the SSX, thereby promoting the
bond market's transparency.

However, an official at SSX said there was no guarantee that
investors would register their transactions.

According to him, people associate taxes with burden and not a
form of incentive if that was what the government was trying to
do.

"One of the most frequent questions I face when talking about
the policy with investors is: What if someone did not register
his transaction with SSX?" the official, who refused to be named,
said.

He said that the regulation did not impose any sanctions on
bond investors who refused to register their transactions, thus
avoiding the 0.03 percent income tax.

"There is a loophole in the policy that could hurt the bond
market," he said.

The official warned that if fewer transactions were registered
with the SSX, it would become more difficult for bond investors
to assess a bond's market value.

Vice president economic research at PT Danareksa Sekuritas
Raden Pardede dismissed the new tax policy as having only a minor
impact on the bond market.

The additional income tax of 0.03 percent for each transaction
is relative small, he said.

Raden also said that the government would immediately charge
the income tax when investors registered their transactions with
the Indonesian Central Custodian Office (KSEI) and not with SSX.

"There is no way that investors can avoid the tax, because
every transaction must go through KSEI," he explained.

The policy, he said, would ensure that the government would
obtain income tax revenue from every bond transaction.(bkm)