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TAXATION

Similar tax rates to Singapore was just a dream

Thursday, 17 November 2016 | Hasyim Ashari

JAKARTA. Let’s forget to have similar income tax rates to Singapore as promised by President Joko Widodo some time ago. Presumably, having similar tax rates to Singapore was just a dream.

Head of the Fiscal Policy Office (BKF) at Ministry of Finance (Kemkeu) Suahasil Nazara said that to date the Kemkeu is completing the draft revision of the Law on Income Tax and the Law on Value Added Tax (VAT). The target is, "Next year, the two drafts will go to parliament," he said, Wednesday (16/11).

He stated that Kemkeu will propose the reduction of income tax rates, both personal and corporate income taxes. But, Suahasil stressed that the proposal is not at the initial plan, which is equal to Singapore, on the grounds that Indonesia and Singapore have different needs.

With the large areas, Indonesia needs a huge amount of funds to build infrastructure. Conversely, with a limited area, taxation in Singapore is merely an additional financial instrument. “Even, the tax rate can be bargained. The reduction in tariff does not necessary mean that we want to compete with Singapore,” he said. Suahasil added that the rate of income tax is still being reviewed.
Gradually down

Revision of the Income Tax Act also regulates the cross border system, following the implementation of automatic exchange of information with the principle of base erosion and profit shifting (BEPS).

As an information, BEPS is a tax planning strategy that takes advantage of the gaps and weaknesses of the domestic taxation legislation to divert profits to other countries with lower tax rates or even tax-free. The goal is that companies do not have to pay taxes, or taxes paid value is very small.

Meanwhile, in the revision of the Law on VAT, Suahasil stated, there will be no VAT incentive. Because VAT is closely related to one another and it has chain from upstream to downstream. "The philosophically, the VAT is production chain, so that when given an exception in the upstream and downstream, it will be chaotic," he said. Incentives are given to income tax, such as tax allowance and tax holiday.

Executive Director of the Center for Indonesian Taxation Analysis (CITA) Justin Prastowo said that the revisions of the two tax laws focus on enforcement of tax subject, extension of tax objects, fiscal fees assertion, adjustment of tax rates, and the affirmation of income tax objects. "The subjects of taxed, for an example, need clear definitions and criteria for the permanent establishment (BUT), including anticipation of the digital economy trends," he said.

Vice Chairman of Indonesia Chamber of Commerce and Industry (Kadin) for Investment, Transportation, Information and Telecommunication Sectors Chris Kanter hopes that the tax rates will be reduced to increase the competitiveness. "At first, it may reduce by 20% -21% first, then by 17% or 18%," he said.

(Muhammad Farid/Translator)

Reporter: Hasyim Ashari
Editor: Dupla KS
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