Tax Scheme Changes: Less Progressive Tariff Adjustments
The World Bank in its Indonesia Economic Prospects June 2021 report entitled Boosting The Recovery which was released yesterday,
highlighted the fiscal strategy implemented by the government. In the report, the World Bank noted that medium-term tax reforms are very important to help recover revenues and increase fiscal resilience. One of the points proposed by the agency is to reduce the value of the taxable income layer at a rate of 30%. This means that the 30% Income Tax (PPh) rate is imposed on income below IDR 500 million. This step is believed to be able to expand the tax base and increase state revenue from the side of personal income tax. As for the Draft Law on General Provisions and Tax Procedures (RUU KUP), the government does not change the layer and amount of tariffs for taxable income of Rp. 500 million and below. The 30% rate is only used for layers of taxable income above IDR 500 million – IDR 5 billion. “There are several avenues for increasing revenue in the medium and long term. One of them is changing individual tax rates for lower incomes, thereby increasing revenue potential,” wrote the World Bank. The agency also advised fiscal authorities to increase oversight of the rich and super-rich in order to explore potential revenues. The trick is to form a special supervisory team. Meanwhile, the government has a different scheme compared to the World Bank's proposal. Instead of using a 30% tariff limit, the fiscal authority added a new layer of 35% tariff for taxable income above IDR 5 billion. The World Bank also criticized the application of final PPh to a number of sectors. The final PPh scheme is considered to have eroded state revenues and this scheme is only enjoyed by the upper class.
|•SOURCE•| Image :DDTC |
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