Cutting Tax Rate to Make Companies Comply
Jakarta. The government is studying whether to reduce next year the corporate income tax to as low as 17.5 percent from 25 percent now, the president’s chief of staff said on Monday, in a move that would push companies to comply with tax payments.
“[Regarding the corporate income tax], it has been discussed between us and lawmakers at the House of Representatives. We aim to gradually reduce the percentage from 25 percent now to about 17.5 percent to 18.5 percent,” said Luhut Panjaitan, a key advisor to President Joko Widodo’s administration.
Indonesia’s corporate income tax rate is higher than Singapore’s 17 percent and 20 percent in Thailand.
The government, though, will also pay strong attention to avoid the plan from hurting state receipts from taxation, which make up the bulk of state revenue.
Luhut was speaking on Monday at a national coordination meeting attended by some ministries about the government’s plan to accelerate fund disbursement to small villages across the country.
Finance Minister Bambang Brodjonegoro confirmed Luhut’s statements in trying to reduce the corporate tax rate. He was quoted by Bisnis Indonesia on Monday as saying that the government will put that option in the government’s agenda to revise the 2009 Income Tax Law next year.
“The reduction in the [tax] tariff won’t guarantee that the tax revenue will increase,” he was quoted by the newspaper as saying.
The minister said the move was being aimed at reducing the corporate income tax in a bid to increase tax compliance.
According to government data, 5 million corporate taxpayers are registed, but only 10 percent of them regularly submit their annual tax reports (SPT).
Still, the Finance Ministry has been criticized for setting up tax revenue target as “too ambitious”. According to the revised 2015 State Budget, total revenue is targeted at Rp 1,762 trillion ($136 billion) and tax revenue — including from excise and duties — is projected to amount to Rp 1,489 trillion, or 85 percent of the total.
This year’s target suggests that the tax office must increase taxation revenue by 30 percent from the 2014 collection.
Meanwhile, the 2015 target for tax receipts — which excludes export or import duties and excise revenues — is set at Rp 1,294.26 trillion, up 31 percent from actual receipts of Rp 984.9 trillion in 2014. or 2015, the corporate income tax is expected to contribute to 17 percent of total tax receipts, up from last year’s 15.2 percent contribution.
One critic, though, says that cutting the corporate tax rate won’t be a singular solution in encouraging companies to comply in paying taxes.
Yustinus Prastowo, executive director of nongovernmental organization Center for Indonesia Taxation Analysis (CITA), said that “reducing the percentage of corporate income tax” isn’t the only “medicine” to prevent companies that often repatriate profits overseas, including to tax-haven countries, so that they can avoid being taxed in Indonesia.
“What we need to do is to overhaul our entire taxation system to trim the potential tax loss,” he said.
