Tax office eyes automotive, retail to reach VAT target

JAKARTA (JP): Director general of taxation Machfud Sidik said over the weekend his office would seek to increase value added tax (VAT) revenue from the country's automotive and retail sectors.

This comes on the heels of President Abdurrahman Wahid's decision to cancel a 10 percent VAT on agricultural products.

Machfud said the measure was necessary to make up for the loss of revenue from the VAT on agricultural products.

"If the VAT on agricultural products is canceled, it will have an impact on 2001 VAT revenue ... but we will take the step of shifting (our focus) to the automotive sector and the huge number of retailers," he said.

The total tax revenue target for this year is Rp 179.89 trillion (US$18.94 billion), of which Rp 48.85 trillion is expected to come from VAT.

Abdurrahman decided last week to cancel a proposed 10 percent value added tax on agricultural products, at the urging of Minister of Agriculture Bungaran Saragih.

Bungaran said the decision not to impose the value added tax was aimed at protecting the products of local farmers, allowing them to compete with overseas agricultural products.

A new VAT law has been in effect since early this year. Under the law, agricultural products are no longer exempt from value added taxes, except for those agricultural products that are deemed basic commodities for most people.

Machfud said if the government wanted to change the new VAT law to exclude all agricultural products, it would have to seek the approval of the House of Representatives.

He said the government must also issue a new ruling on the decision. "If a government regulation has not yet been issued, the VAT on agricultural products still applies."

Separately, Coordinating Minister for the Economy Rizal Ramli said on Friday the directorate general of taxation should focus on income tax to make up for lower VAT revenue.

"We want to remind our friends at the directorate general of taxation to be more focused on income taxes.

"They should focus on taxing the rich instead of focusing on VAT," Rizal said.

He said imposing a value added tax on agricultural products would have a serious impact on producers and consumers in the form of a more expensive products, adding that his office would meet with Machfud on Monday to discuss the issue.

The tax office is under pressure to meet the 2001 tax revenue target. However, the aggressive tax target has worried many businesses.

The automotive sector, for instance, earlier expressed concern that the imposition of a higher luxury tax on some vehicles would hamper the development of the domestic automotive market.

A recent government decision to increase the income tax on the interest from bank time deposits from 15 percent to 20 percent has also been criticized, particularly by bankers who fear a flight of capital.

Rizal said the government would not cancel the income tax increase on time deposits despite the criticism. (rei)