On tax stimulus

On tax stimulus

I am writing in response to the article by David Sumual on
Aug. 26 on the need for a tax stimulus to create new investment
and higher economic growth for Indonesia.

While in principle, I agree with Sumual's argument, I think
his tax stimulus proposal does not go far enough. Companies in
Indonesia are hit by one of the highest corporate income taxes in
the Southeast Asian region, at 28 percent per annum. In addition,
they have to pay various other user charges imposed by central
and local governments, both official and unofficial.

I do not think Sumual's proposal for a 10 percent investment
tax stimulus and a decrease in excise duty for the importation of
machinery would be effective in jump-starting new investment in
Indonesia, since the proposed tax stimulus is far less than the
overall tax rates companies have to pay to government officials.

In addition, only manufacturing firms would benefit from this
tax stimulus, leaving the agriculture and service industries with
no economic stimulus whatsoever.

As an alternative, I would propose that Indonesia impose a
single, flat-rate corporate income tax no higher than 15 percent
per annum. This would bring Indonesia's corporate income tax on a
par with the level charged by our competitors, such as South
Korea, Hong Kong and Malaysia, thereby attracting more foreign
direct investment to Indonesia.

Finally, I would call for the abolishment of most user charges
imposed by central and local governments on businesses, and for
an overhaul of our legal system to eradicate the corruption
endemic to this country.

With these changes, the barriers to investment in Indonesia
would be eliminated and hopefully, a high and sustainable
economic growth could be generated, which would improve the
fortunes of all Indonesians.

ALEX ARIFIANTO, Jakarta