Indonesia finmin unveils plans for major tax overhaul

Finmin proposes VAT hike to 12%, from 10%

  
An aerial view of deserted main roads in Jakarta following the imposition of large-scale social restrictions by the government to prevent the spread of the coronavirus disease (COVID-19) in Jakarta, Indonesia, April 10, 2020 in this photo taken by Antara Foto. Antara Foto/Sigid Kurniawan/ via REUTERS

An aerial view of deserted main roads in Jakarta following the imposition of large-scale social restrictions by the government to prevent the spread of the coronavirus disease (COVID-19) in Jakarta, Indonesia, April 10, 2020 in this photo taken by Antara Foto. Antara Foto/Sigid Kurniawan/ via REUTERS

JAKARTA  - Indonesia's finance minister on Monday laid out a government proposal for an overhaul of tax regulations, including introducing a programme to report undisclosed assets, bringing in a carbon tax and hiking the VAT rate.

Sri Mulyani Indrawati told a meeting with parliament's finance commission the measures were aimed at boosting government revenues that have dropped in Southeast Asia's biggest economy due to the coronavirus pandemic.

"Even though we are discussing this during the COVID pandemic, it does not divert our attention from the medium-, long-term need to build a fair, healthy, effective and accountable tax system," Sri Mulyani said, promising implementation will take into account economic recovery.

The minister proposed increasing the base value added tax (VAT) rate to 12%, from 10% currently, applying a 5%-25% rate range for some goods and services, and removing most exemptions. To limit the impact on the poor, she proposed more subsidies.

An income tax rate of 35% was floated for people earning at least 5 billion rupiah ($345,662) annually. Indonesia now applies 5% to 30% personal income tax.

She also proposed a new carbon tax of 75 rupiah ($0.0052) per kg of CO2 equivalent and an excise tax for all plastic products.

The government needs to reform the tax policy now so it is ready to be implemented once Indonesia passes through the pandemic, said Moekti Prasetiani Soejachmoen, chief economist at investment firm Danareksa.

"If the discussion doesn't start now, it is likely that we will miss the momentum again and the burden on the government budget will continue to be hefty," she said, adding that it was best to implement the reform at the end of 2022 to help the government meet 3% of GDP fiscal deficit target in 2023.

The minister also unveiled a programme to allow people to report undisclosed assets following Indonesia's previous tax amnesty in 2016 to 2017.

According to a copy of the draft bill provided by a lawmaker, the government aims to give taxpayers another chance to declare hidden assets by charging a rate of between 12.5% to 30% of the asset values. 

The minister also proposed an "alternative minimum tax" for loss-making businesses that continue to operate, a chance to settle tax crimes with fines, and a revision so that other parties such as electronic transaction providers can collect taxes on behalf of the government.

The bill is set to be debated with parliament's finance commission, which usually takes several months, before it is tabled for a wider parliamentary vote. The government controls more than 70% of the seats in parliament. ($1 = 14,450.0000 rupiah)

(Reporting by Tabita Diela and Gayatri Suroyo Editing by Ed Davies, Martin Petty) ((gayatri.suroyo@thomsonreuters.com; +622129927609; Reuters Messaging: gayatri.suroyo.thomsonreuters.com@reuters.net))


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