Tax reform slashes provinces' revenues

Tax reform slashes provinces' revenues

JAKARTA (JP): The tax reform introduced earlier this year, by
raising the tax-free threshold on property, will reduce regional
administrations' revenues from property taxes by a total of Rp
100 billion (US$43.8 million), according to the director general
of taxes.

"The new law on property tax has taken some 10 million to 12
million former taxpayers off the list," Director General of Taxes
Fuad Bawazier said after opening an international training
program on property tax yesterday.

The training program was attended by 13 participants from nine
developing countries, including Pakistan, Laos, Papua New Guinea,
Tanzania and the Western Samoa Islands.

Fuad said the tax reform has not only updated the previous
1985 tax laws, but has also helped cut back high tax-collection
costs, which mostly came from administrative procedures.

The government announced in January an increase in untaxable
property from Rp 2 million to Rp 8 million in value.

Tax collection costs, especially in rural areas, often
amounted to more than the value of the tax collected, he said.

"There are property taxes (in villages) which are as meager as
Rp 100, Rp 200 or Rp 500. This is not worth the cost of
collecting it," Fuad said.

The new law on property tax exempts such people -- between 10
and 12 million in number -- from property tax, he said.

Fuad said the "losses" caused by the reduction in local
administrations's property tax revenues will be made up for by
the central government.

"This way, everyone will benefit from the situation because
people won't have to pay taxes and the local administrations
won't lose revenue," he said.

There are five sources of property tax in Indonesia: urban,
rural, mining, forestry and plantations. Sixty percent of the
government's tax receipts are derived from urban and rural
sources, while the remaining 40 percent come from the other
sources.

Fuad said that property tax collection in Indonesia has been
growing at a rate of between 25 percent and 26 percent per annum.

He said that developing countries should now try to rely more
on domestic earnings derived from taxes in financing their
development programs, rather than on foreign loans and natural
resources.

"It has become more expensive to rely on foreign borrowing and
too risky to rely on natural resources," he said. (pwn)