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)