Tax rate cut makes RI more attractive to foreign investors
Tax rate cut makes RI more attractive to foreign investors
JAKARTA (JP): Business analysts hailed yesterday the reduction
of the income tax tariffs, describing the move as the most
effective way of attracting foreign investment.
Economist Christianto Wibisono said the government had no
choice but to reduce income tax rates in order to make the
country's business climate more attractive to foreign investors.
"The reduction of the income tax rates is in line with the
trend in the world. If we do not follow the direction, we will be
left behind," he told The Jakarta Post in commenting on the four
tax bills passed by the House of Representatives (DPR) on
Thursday.
Christianto, the director of the PDBI business data center,
was upbeat that the lower rates would not affect the government's
tax receipts as the reduction would be able to significantly
stimulate economic activities.
The broadening of the tax bases resulting from the better
business climate will automatically raise the government's tax
earnings, he said.
The DPR approved the four government-sponsored tax bills
Thursday, allowing significant drops in income tax rates.
The tax bills, which will amend the present four laws on
income tax, property tax, value added tax (VAT) and sales tax for
luxurious goods, as well as tax procedures, reduce income tax
tariffs to 30 percent from 35 percent for the highest income
bracket, to 15 percent from 25 percent for the middle income
level and to 10 percent from 15 percent for the lowest income
group.
Incentives
The bills also provides stronger incentives to investors
operating in frontier areas like those in the eastern provinces
by allowing them to have a shorter term of depreciation and
amortization, a longer period for the compensation of losses and
a lower tax rate for dividends.
Christianto, however, said that the government should continue
its deregulatory measures to minimize red tape and to improve
business efficiency as the reduction in the tax rates alone would
have a small impact on the economy.
Other business analysts said that giving more autonomy to
provincial administrations is essential to stimulate economic
activities in eastern provinces, especially their remote areas.
"The tax incentives for investors in remote areas are not so
significant as compared to their high operational costs," he
said.
He shared Christianto's view on the need to give stronger
autonomy to provincial administrations so that local authorities
would have much more say in driving economic activities in their
provinces.
"The government should also encourage large companies to
establish headquarters in the provinces, instead of Jakarta," he
said, adding that the inclination of large companies operating in
provinces to have headquarters in Jakarta hampers the economic
growth in remote areas.
The analysts said that a ruling should drive those companies
to set up head offices in provinces as their presence would
automatically attract other companies.(hen)