Indonesia sets tax plan with new income bracket, Amnesty

(Bloomberg) – Indonesia has started discussing a tax revision proposal with parliament, with plans to increase value-added tax, impose a new income bracket, and target loss-making businesses, while offering a potential amnesty.

General VAT covering most goods and services will be increased to 12%, from 10%, while some items may be subject to varying rates of 5% to 25% depending on the price, Finance Minister Sri Mulyani said on Monday. Indrawati. The government included a tax amnesty program in the draft submitted to parliament, although it did not read the details during the hearing.

Southeast Asia’s largest economy also wants to impose a 35% tax rate on people earning more than 5 billion rupees ($ 345,600) a year. A minimum corporate income tax should also be set for companies that report losses for many years through “creative accounting, but can still operate and benefit from government facilities,” according to the bill. .

The VAT structure and the new income tax bracket are expected to be implemented in January 2022, according to the bill.

The government saw its budget deficit swell to over 6% of gross domestic product in 2020 as it embarked on heavy stimulus spending despite low tax revenues. Like many emerging markets, Indonesia is looking to bail out state coffers as the pandemic appears to have a more prolonged impact on the economy, with daily Covid-19 cases reaching new highs last week.

“The tax base should be broadened and tax compliance should be improved to increase fiscal capacity,” Indrawati said. “We must continue to reform tax policy and administration so that it is fair between sectors and between income groups, and creates legal certainty, becomes an optimal source of revenue for the state and follows best practices . “

Closing the loopholes

Indonesia’s tax gap – the difference between actual and potential collections – is around 8.5%, more than double the 3.6% among peer countries, she said. The so-called omnibus law on tax reform aims to bring this deficit closer to the international benchmark.

There is room for improvement for various levies, Indrawati said. Indonesia has one of the least progressive income tax frameworks in the region, with the fewest four brackets, compared to seven in Vietnam and the Philippines and eight in Thailand. Only 1.4% of Indonesian taxpayers have paid income tax at the highest rate of 30% in the past five years.

Indonesia’s current 10% VAT rate is also lower than the global average of 15.4%, as tax levies are eroded due to too many exemptions, Indrawati said.

As part of the VAT reform, previously exempt essential products, such as basic goods as well as education and health services, will be subject to VAT under the proposal, but at lower rates. Those who cannot afford VAT may be exempt or be eligible for subsidies.

Certain VAT exemptions will be maintained, in particular:

Goods and services already subject to local taxes and levies Silver and gold bars for the country’s foreign exchange reserves and securities

Amnesty ready

The government will propose another tax amnesty program, allowing taxpayers to declare assets obtained from 1985 to 2015 subject to an income tax of 15%, or 12.5% ​​for those who invest the assets in government securities. Assets obtained from 2016 to 2019 will be subject to a tariff of 30%, or 20% for those who invest in government securities.

In line with Indonesia’s goal of reducing carbon emissions by 29% by 2030, the Ministry of Finance has proposed including plastic products in its excise tax, as well as alcohol and tobacco.

He also set a carbon tax at Rs.75 per kilogram of carbon dioxide equivalent. The tax could bring the government 32 trillion rupees in revenue, according to a finance ministry simulation last year, assuming the use of coal in power generation and industry, and diesel and gasoline. gasoline in the transport sector.

(Updates with details on income tax, excise and carbon plans)

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