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)