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