Govt to Reduce Income Tax Rate to Broaden Tax Base

KATADATA - The Government is exploring ways to reduce corporate and individual income tax rate (income tax) due to start next year. Finance Minister Bambang Brodjonegoro said that the plan is intended to entice taxpayers to deposit their funds in the country after the tax amnesty period was over.

Currently, the government is working hard to finalize draft Law on Tax Amnesty. The law is expected to boost state revenues from the ransom paid by taxpayers who report their wealth through a tax amnesty scheme.

Lower income tax is expected to make taxpayers feel comfortable in fulfiling their obligations to pay taxes. “Tax amnesty first and then income tax reduction. We’ll adjust the rate after the implementation of tax amnesty,” he said in his office in Jakarta.

Unfortunately, he did not want to disclose the exact amount of rate deduction. Currently, the corporate income tax rate is set at 25 percent of the company's profit. Meanwhile, the individual income tax rate is varied from 5 to 30 percent of monthly or annual income. Tax amnesty followed by income deduction is expected to broaden the tax base. Therefore, the ministry is also finalizing the revision of Income Tax Law.

Rumour has it that corporate income tax rates will be lowered to 17.5 to 17.8 percent as hinted by Coordinating Minister for Political, Legal and Security Luhut Binsar Panjaitan he was still served as Chief of the Presidential Staff. The goal is to avoid the transfer of corporate profits (profit shifting) to foreign countries like Singapore.

Responding to the plan, Executive Director of the Center for Indonesian Taxation Analysis (CITA) Justin Prastowo said that in-depth research on the potential that can be gained from the policy is needed. If low tax compliance is due to high rate, this policy may be beneficial. Unfortunately, according to him, the country’s low tax compliance is due to the lack of oversight and enforcement. "Indonesia has several times lowered its tax rate, but they didn’t result in significant increase in revenue," said Prastowo to Katadata, Tuesday, November 10, 2015.