Tax revenue at risk due to economic crisis: Official

JAKARTA (JP): Director General of Taxation Effendi Ritonga said on Wednesday that the 1998/1999 tax revenue target might not be achieved due to massive demands for tax exemption in the wake of the current economic crisis.

He said here that the revenue target from the value added tax (VAT) was particularly at risk because the government had agreed to provide exemption for the Batam industrial island and the animal feed industry, and was considering a similar exemption for port operators and for the purchase of airplanes and ships.

"We have to work extra hard to attain the VAT target because we'll lose some of the VAT sources that we put into the previous calculations," he told reporters after speaking at a seminar.

"I can't disclose the figure we have lost but the amount is significant," he added.

He pointed out that the only strong sources of tax revenues during the current difficult economic situation were from the agribusiness sector and industries which were not dependent on imported raw materials.

Effendi, however, said that at the end of October, income tax revenue had already surpassed the Rp 26 trillion (US$3.5 billion) target, helped by high bank interest rates on time deposits and the sharp depreciation of the rupiah against the U.S. dollar which resulted in higher tax payments from foreign exchange activities.

He pointed out that the income tax revenue scenario was based on an assumption of time deposit interest rates of 30 percent, and an exchange rate of Rp 10,600 to the dollar.

Time deposit rates have been hovering around 50-60 percent, while the rupiah's exchange rate reached more than Rp 14,000 in June before stabilizing to around Rp 7,500 during the past couple of months.

Revenue for the value added tax is set at Rp 29 trillion, compared to the total tax and excise revenue of Rp 72.93 trillion in the current fiscal year ending in March 1999.

Effendi said that tax revenues, at around 52 percent, remained the dominant contributor to domestic revenue, although its contribution to the overall state budget declined to 28 percent due to rising overseas assistance.

He warned that a failure in achieving the tax revenue target would result in the disruption of the government's routine spending.

"There must not be any attempts to use the current crisis as an excuse for not paying taxes, because if that happens where will the government get the financing required for its routine spending."

"Should we lower the salary of government employees, or will we accept disorder in the supply of electricity?" he asked.

He said that various industries have asked the government to provide value added tax exemptions due to the current economic crisis.

They include the automotive, garment, entertainment, book publishing, electronics and tourism industries.

He also explained that the government would have to forfeit huge potential VAT revenues, particularly from the restructuring of banking sector and private sector overseas debts, in order for the restructuring programs to be successful.

As an example, he pointed out that the banking sector's bad assets would likely be transferred to the Indonesian Bank Restructuring Agency at zero value.

He added that companies receiving a debt haircut would likely be allowed to spread the payment of their VATs over a five-year period. Under the existing law, debt forgiveness is treated as capital gain, which is subject to VAT. (rei)