JAKARTA (Reuters) – A planned Indonesian corporate tax cut would cost the government of President Joko Widodo up to $6 billion in lost revenue in a fiscal year, the head of the tax department said on Thursday.
Widodo has proposed lowering the corporate tax rate to 20% from 25%, starting in 2021, though Finance Minister Sri Mulyani Indrawati recently said it should be done in stages.
The tax cut was a promise Widodo made when running for the presidency in 2014 and which he repeated when campaigning for a second term. He won re-election in April and will begin his new term in October.
Robert Pakpahan, Indonesia’s tax chief, said a reduction by 5 percentage points would cut revenue by 87 trillion rupiah ($6.14 billion) in a fiscal year.
If the cut is done in stages and the rate brought down to 22% in 2021, the estimated lost revenue for that year would be reduced to 52.8 trillion rupiah, he said.
“These are the options, whether to cut in stages or directly to 20%,” he told a news conference.
On Tuesday, Indrawati announced details of the bill that will bring in a tax overhaul, which will include making tech firms pay value added tax (VAT).
The bill, which needs parliamentary approval, is part of broader tax reforms in Southeast Asia’s largest economy intended to improve revenue collection, increase compliance and attract investment.
Pakpahan said the government had not completed its research on the planned bill, but aimed to file it to parliament soon and make it a priority for 2020.
Apart from details already disclosed, the government will also amend the brackets for personal income tax to reflect the changes in society’s living standards, Pakpahan said.
Yustinus Prastowo, executive director of the Center for Indonesia Taxation Analysis, said the tax bill should be positive for business and “hopefully could have a significant impact on the economy”.
However, Prastowo warned that other reforms must be done in parallel, such as efforts to expand the tax base, to cover for the potential revenue loss.
The Organization for Economic Co-operation and Development (OECD), in a report this year, said Indonesia had the lowest tax-to-GDP ratio in the Asia-Pacific.
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