Indonesia may tax more wealthy individuals and top polluters to boost state revenue

• May 25, 2021

JAKARTA (BLOOMBERG) – Indonesia seeks to cast a wider net to tax more high-income individuals and top polluters in a bid to replenish its state coffers.

The Finance Ministry presented the proposals – which could be part of key reforms this year – to a parliamentary commission this week. The government needs to collect more revenue to sustain spending while keeping its vow to bring its budget deficit back within the legal limit of 3 per cent of gross domestic product, from 6 per cent last year.

“The goal of this tax reform is not just revenue collection but the sustainability of the state budget,” said Finance Minister Sri Mulyani Indrawati.

“The whole world is also accelerating its revenue collection in the midst of soaring budget deficits and debt ratios. This is a response that must be done with caution.”

Here are the tax changes under study:

Carbon tax

Taxing carbon emissions will help Indonesia to curb greenhouse gases while raising funds for green state investments and social welfare programmes, Ms Indrawati said. The government could use existing taxes such as excise, motor vehicle and fuel taxes to enforce it, or it could create an entirely new levy through a carbon tax.

The tax could apply to emission sources like fossil fuels, motor vehicles and factories, as well as carbon-intensive activities such as those in the pulp and paper, cement, power generation and petrochemical industries.

Income tax

Indonesia could add a new 35 per cent income tax bracket for individuals earning more than 5 billion rupiah (S$463,000) a year. Taxpayers are currently grouped into four brackets, with rates ranging from 5 per cent to 30 per cent.

The country is poised to see the world’s fastest growth in ultra-high-net-worth individuals in the next five years, according to a report by consultancy firm Knight Frank.

Value-added tax

Indonesia could introduce multiple tiers for value-added taxes (VAT), with lower rates for basic necessities and higher ones for luxury items. It currently imposes a single tariff of 10 per cent on all covered goods and services.

More items could also be taxed, with rice, corn, drinking water, electricity and financial services currently exempted.

Despite consumption accounting for the bulk of gross domestic product, VAT accounted for only about 40 per cent of the government’s tax income in 2020.

Digital tax

Indonesia is finalising the formula to tax digital companies and impose levies on electronic transactions. The government has issued a law stating that taxes could be imposed on companies with significant economic presence in the country, but it has not set out regulations for the tariff or how it would impose and calculate it.

Indonesia started collecting VAT on goods and services sold to residents through online platforms last year, with 65 companies appointed to collect the fee so far, including Google, Amazon, Shopee and Tokopedia.

Tax amnesty

Indonesia could take another stab at a tax amnesty programme, following a 2016 programme that uncovered 4,813 trillion rupiah in undeclared assets.

Taxpayers who have undisclosed assets as at the 2019 tax year might be able to settle their past obligations at current income tax rates without any sanctions. They might enjoy lower rates if the assets are invested in government securities.

However, those who failed to disclose their assets during the first tax amnesty period in 2016 will have to pay income tax above the highest tax amnesty rate.

Source: https://www.straitstimes.com/business/economy/indonesia-may-tax-the-rich-top-polluters-for-more-state-revenue