Indonesia parliament commission, government agree on major tax changes

MACROECONOMICS - JAKARTA. The Indonesian parliament's finance commission and the government have reached an agreement on major tax changes under a bill that plans to raise the rate of VAT and bring in a carbon tax, the finance ministry said on Thursday.

The agreement reached late on Wednesday was hailed by Finance Minister Sri Mulyani Indrawati as an important structural reform to support a recovery in Southeast Asia's largest economy from the COVID-19 pandemic.

The bill will introduce changes in rules for value added tax, income tax and excise, as well as introduce a carbon tax, the ministry said in a statement.

Ministry officials declined to share more details before a wider parliamentary vote. President Joko Widodo's coalition controls the majority of seats in parliament, making the passage likely to be a formality.

According to a copy of the bill reviewed by Reuters, VAT will rise to 11% starting April, 2022, from 10% currently and increase to 12% by 2025. A proposal for a rate between 5% to 25% VAT for some goods and services was dropped.

The bill also sets a 22% corporate tax from 2022 onwards, unchanged from now. It was unclear whether it overrides an existing law that sets a 20% corporate tax rate for 2022.

A 35% personal income tax rate for those earning more than 5 billion rupiah per year was approved. However, more will be included in a 5% income tax rate, as the income band threshold was raised to 60 million rupiah from 50 million rupiah.

There will also be a follow-up programme to the 2016-2017 tax amnesty, which will run from Jan. 1 to June 30, 2022. The programme is in line with the government's earlier proposal, but lawmakers approved lower rates.

Tax payers who joined the previous amnesty but still have undisclosed assets up to 2016 can disclose them, with the assets to be considered as additional income and taxed between 6%-11%. Taxpayers can also report undisclosed assets between 2016 to 2020, which will be taxed between 12%-18%.

The commission and the government also agreed on a different tax rate for the newly introduced levy on carbon emission.

The government had initially proposed 75 rupiah per kg of CO2 equivalent on goods and activities that emit greenhouse gas. In the latest bill, the tax will be set according to carbon market pricing or higher, with a floor rate of 30 rupiah per kg.

The government will start collecting the carbon tax in April 2022, with coal power plants the first to be included at the floor rate.

The finance ministry did not respond to a request for comment on the details in the bill reviewed by Reuters.