Tax on deposit interest unfair

Tax on deposit interest unfair

From Bisnis Indonesia

Through Government Regulation No. 131/2000 the government has irrevocably increased the income tax on deposit interest from 15 percent to 20 percent. The government's reason for this hike is understandable, but various parties have launched objections.

The decision on the tax hike is viewed from two points, firstly from the government's authority to do so, and secondly from the angle of justice that can be explained as follows:

Income tax on deposit interest is arranged under Income Tax Law Article 4 Paragraph (2) which authorizes the government to stipulate regulations on several kinds of taxes, including income tax on deposit interest which was fixed at 15 percent.

As a matter of fact, the authority delegated by the law to the government to determine the amounts of taxes is against the 1945 Constitution Article 23 Paragraph (2) which stipulates that "all taxes shall be determined under a law", which means that it should receive approval from the House of Representatives (DPR).

So, the government is not competent to determine the tax burden or tax tariff; the government should only enforce the law. But all this time, the DPR has let such an error go by, has let one of its rights be breached by the government. This is because the DPR itself doesn't know its rights.

Viewed from the point of justice, the imposition of the irrevocable 20 percent income tax will be more burdensome for the poor whose deposits are much smaller than those of the rich. Yet the same tax tariff is applied to both the poor and the rich.

The following example will explain it. Someone has a deposit of Rp 20 million. If the deposit interest is 12 percent per annum and the tax is 20 percent, the income tax to be paid is Rp 480,000 (20 percent x 12 percent x Rp 20 million). If not imposed by final tax and is considered an ordinary income, the tax to be paid is Rp 240,000 (10 percent x 12 percent x Rp 20 million). This means that the final tax imposition has caused a 100 percent increase of the tax. On the other hand, a rich person with Rp 1 billion deposit, would only have to pay an interest tax amounting to Rp 24 million (20 percent x 12 percent x Rp 1 billion).

If not imposed on a final basis, the tax to be paid is Rp 42 million, the interest tax for big deposit being 35 percent per annum. Here we can observe that the new tax ruling on deposit interest is to the advantage of the rich.

To overcome this problem, for the sake of justice, the final tax on deposit interest should not be imposed, but the deposit interest should be combined with other income and recorded in the Tax Payer's Notification. The simplicity of the final tax imposition which is used by the tax office as a reason to justify its policy has sacrificed the principle of fair imposition on taxes.

MOENAF H. REGAR

Medan, North Sumatra