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)