Corporate Income Tax Indonesia to Be Cut in 2017?

Whether the corporate income tax rate of Indonesia could be cut at once from 25 percent to 17 percent, or whether it should occur gradually (for example from 25 percent to 20 percent first, followed by another cut to 17 percent at a later stage) remains unclear. President Widodo stated that both options need to be studied carefully. He added that in the current era of strong global competition a nation needs to be competitive in terms of taxation.

Sri Mulyani Indrawati, who was recently appointed as Indonesia's new Finance Minister through a cabinet reshuffle, stated that a corporate income tax cut would make the Indonesian economy more competitive and can help to realize the government's ambitious development programs. In theory, the lower corporate tax rate gives companies more financial room for expansion, hence the government would be able to collect more tax revenue on the longer term. Indrawati added that the government will send a proposal to the House of Representatives (DPR).

The government of Indonesia will study whether revising the tax system would indeed be a positive step. If revisions are made, the earliest timing would be somewhere in 2017. Revisions will require approval from DPR.

Tax Amnesty Program of Indonesia

Indonesian authorities have been eager to enhance tax revenue collection. To plug a widening tax deficit in the 2016 State Budget (and to collect fresh funds for the purpose of boosting economic growth), the government launched the tax amnesty program on 18 July 2016. Through this program tax evaders are offered incentives (tax cuts and impunity from prosecution) provided they declare and - if desired - repatriate their offshore assets into specific investment instruments in Indonesia.

The nine-month program runs until 31 March 2017. However, after the program has been running for nearly one month, the interim results are rather bleak. Indonesian authorities remain optimistic that the peak of declarations and capital repatriations will occur in the September-October 2016 period.

Tax Amnesty Program Indonesia - Score So Far:

	Target (in IDR trillion)	Per 10 Aug '16  (in IDR trillion)
State Income	165.0	0.322
Declaration of Funds	4,000.0	13.2
Repatriation of Funds	1,000.0	0.74

^{Source: www.pajak.go.id/statistik-amnesti}

Matters that block the success of Indonesia's tax amnesty program include: (1) lack of confidence that tax dodgers will not face penalties or prosecution as Indonesia is known for its flip-flop policies, (2) the unattractiveness of Indonesia's investment instruments as well as the stipulation that funds need to remain onshore for at least three years, and (3) the tax incentives only apply for past income, while future income will be taxed in accordance to Indonesia's relatively high tax rates.

Indonesia's Tax Collection Target and Realization 2008-2016

	2008	2009	2010	2011	2012	2013	2014	2015	2016
Target (in IDR trillion)	534.5	597.5	661.4	878.7	885.0	995.2	1,072.4	1,294.3	1,360.1
Realization (in IDR trillion)	607.4	563.2	650.0	872.6	835.3	916.3	985.1	1,055.6	364.1¹
Balance (in IDR trillion)	72.9	34.3	11.4	6.1	49.7	78.9	87.2	238.6
Realization (%)	106.9	90.9	98.3	99.3	94.4	92.1	91.9	81.6

^{¹ realization in January-May 2016}

Indonesia to Become a Tax Haven?

In June 2016, then-Finance Minister Bambang Brodjonegoro (who was replaced by Sri Mulyani Indrawati in the latest cabinet reshuffle) stated that Indonesia may consider to create a tax haven in Indonesia through an offshore financial center at one of the islands. This center would allow Indonesian residents and non-residents to establish shell companies for their offshore investments.

Read more: Tax system of Indonesia

Due to Indonesia's high tax tariff regime, many Indonesian companies prefer to be based in tax havens, such as Singapore. It is estimated that some USD $200 billion worth of "Indonesian money" is stashed offshore in Singapore. However, after Brodjonegoro's statements in June 2016, there have not been made any other public statements by Indonesian policymakers regarding the establishment of a tax haven in Indonesia. However, in local media, it is mentioned that the government is currently still studying this move.

Poll Indonesia Investments

-

‹ Kembali ke Berita Hari Ini

Bahas

Silakan login atau berlangganan untuk mengomentari kolom ini