Tax exemptions for low-paid workers

JAKARTA (JP): Factory workers who earn less than the minimum wage do not have to pay income tax, the minister of finance, Mar'ie Muhammad, said yesterday.

Mar'ie, accompanied by the minister of manpower, Abdul Latief, said that the new ruling, stipulated in finance ministerial decree No. 229, 1997, would become effective next month.

But workers who earn more than the regional monthly minimum wage have to pay income tax or have their employers pay their income for them.

Latief said the new ruling would allow workers to be paid their full wages each month and help employers reduce their expenses because employers usually pay their employees' income tax as part of labor agreements.

"So if there are people who say the government does not care about the welfare of the workers, it is not true," Latief said.

"The government does not wish to see relations between employers and their employees ruined because of the minimum wage issue," he said.

Latief denied there was any connection between the tax exemption and the May 29 general election.

"It's not meant to attract sympathy for Golkar ... It's just the President's orders," he said.

In recent months workers in many parts of Greater Jakarta have gone on strike demanding to receive the minimum wage after tax.

This means their employers would have to pay their workers' income tax.

Starting April 1, the government increased regional minimum full time wages across the country to between Rp 106,500 and Rp 235,000 a month.

They were between Rp 96,000 and Rp 220,500 a month before the rise.

The regions with the lowest minimum wages are Yogyakarta, Central Sulawesi and East Nusa Tenggara.

The region with the highest minimum wage is the bonded island of Batam, which is near Singapore.

However, the full time minimum wage increase has lifted laborers' wages in several provinces above the tax-free threshold of Rp 144,000 a month for an unmarried worker, thereby making them liable to pay 10 percent income tax.

Without the new exemption, unmarried factory workers in Jakarta, who get Rp 172,500 a month, would have to pay Rp 2,850 income tax a month.

The new ruling means they will not have to pay any income tax.

Under the new ruling, the income tax should be deducted from the worker's salary and transferred the tax office by the employer, or it may be borne by the employer depending on the collective labor agreement.

The director general of taxes, Fuad Bawazier, said the new ruling applied only to laborers.

Mar'ie said the new ruling would not affect the government's efforts to increase tax revenue this fiscal year.

"We will definitely reach our target," he said.

He said the government had stepped up tax collection efforts.

The government plans to collect Rp 73.2 trillion in non-oil and gas tax revenue this fiscal year, up 14.2 percent on the Rp 64 trillion collected last fiscal year.

Income tax revenue is expected to contribute Rp 29.7 trillion, up 22.8 percent.

Latief said about five million or 15 percent of Indonesia's 32 million workers were being paid at the minimum wage level.

The chairman of the Indonesian Footwear Association, Anton J. Supit, welcomed the new ruling but still saw room for improvement.

"It would be better if the government raised the level of the untaxable income limit, although this may affect government tax receipts," he said. (pwn/rid)

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