In­done­sians fear higher costs with new taxes

The China Post - - COMMENTARY - BY WAHYUDI SOERIAATMADJA

An ar­ray of new taxes and higher roy­al­ties to be im­ple­mented in the com­ing months, af­fect­ing prop­erty pur­chases, re­tail sales and nat­u­ral re­sources such as coal, has got busi­nesses wor­ried over ris­ing costs. It could also af­fect in­vest­ments.

From later this year, buy­ers of res­i­den­tial prop­er­ties worth more than 2 bil­lion ru­piah ( US$154,000) will have to pay a luxury tax of 5 per­cent on top of an ex­ist­ing 5 per­cent prop­erty sales tax. Now, only prop­er­ties worth more than 10 bil­lion ru­piah are sub­jected to a luxury tax as well as a sales tax.

In re­tail sales, in­clud­ing gro­ceries, a new levy of 3,000 ru­piah will be im­posed on any trans­ac­tion ex­ceed­ing 250,000 ru­piah.

For coal, the en­ergy min­istry plans to raise roy­al­ties, or the amount coal min­ers have to pay to the gov­ern- ment for ev­ery ru­piah of coal sold, from the cur­rent 3 per­cent to 7 per­cent, depend­ing on the qual­ity of coal, to 7 per­cent to 13.5 per­cent.

The move to raise ex­ist­ing and in­tro­duce new taxes comes as Pres­i­dent Joko Wi­dodo seeks to in­crease state cof­fers to fund in­fra­struc­ture build­ing to stim­u­late the econ­omy.

In­done­sia saw its low­est gross do­mes­tic prod­uct (GDP) growth in five years last year, at 5 per­cent, even as large amounts of funds are needed for in­fra­struc­ture projects such as roads, ports and power plants. Its bud­get this year tar­gets 1,484.6 tril­lion ru­piah of tax rev­enue. Last year, it recorded 982 tril­lion ru­piah or 90 per­cent of what it had tar­geted from tax col­lec­tions. But an­a­lysts and in­dus­try play­ers are say­ing the move to raise taxes may back­fire, and could in­stead heighten the cost of do­ing busi­ness and make the in­vest­ment cli­mate tougher.

Nat­sir Man­syur, deputy chair­man of the In­done­sian cham­ber of com­merce (Kadin), told The Straits Times the tim­ing for in­tro­duc­ing new taxes is not right.

Aim­ing for Bet­ter Com­pli­ance

“We un­der­stand the gov­ern­ment wants to boost rev­enue, but they must first look at the cur­rent busi­ness con­di­tion do­mes­ti­cally and glob­ally. Busi­nesses over­all are not do­ing well now. De­mands are slow­ing. The gov­ern­ment should in­stead ex­pand the tax cov­er­age,” said Nat­sir, who is also a fi­nance com­pany owner.

Agree­ing, other in­dus­try play­ers say this will fur­ther dampen a lessthan-ro­bust con­sumer spend­ing and could af­fect profit mar­gins. Tu­tum Ra­hanta, deputy chair­man of the In­done­sian Re­tail­ers As­so­ci­a­tion (Aprindo), said: “At the end of the day, con­sumers will get the bur­den be­cause re­tail­ers will pass this addi- tional cost on to the con­sumers.”

Other than rais­ing taxes, the gov­ern­ment is also look­ing at strength­en­ing tax col­lec­tion.

In­done­sia’s tax rev­enue — with 120 mil­lion in its work­force — was about 11 per­cent of GDP last year, rank­ing be­low coun­tries with smaller pop­u­la­tions like Malaysia whose tax rev­enue to GDP was 16 per­cent or Sin­ga­pore whose fig­ure stood at 14 per­cent. Fi­nance Min­is­ter Bam­bang Brod­jone­goro has an am­bi­tious goal to raise tax rev­enue to 30 per­cent, say­ing this would be made pos­si­ble largely by higher com­pli­ance through a bet­ter data col­lec­tion sys­tem. He also said the gov­ern­ment will step up mea­sures in catch­ing rogue tax of­fi­cials to pre­vent fund leakages.

How­ever, he needs to over­come stum­bling blocks such as lax tax col­lec­tion by an un­der­staffed and ill­trained tax agency and poor com­pli­ance such as tax eva­sion or un­der- re­port­ing. Ac­cord­ing to for­mer cen­tral bank chief Darmin Na­su­tion, many pri­vate firms, par­tic­u­larly the fam­ily-con­trolled ones, do not make div­i­dend pay­ments and in­stead mark up costs to cover the fam­ily’s daily spend­ing. This is how they avoid pay­ing taxes as money go­ing from a firm to a share­holder must be in the form of div­i­dends, which are tax­able.

Tax col­lec­tion is also com­pounded by the sheer size of the coun­try — a sprawl­ing ar­chi­pel­ago — which makes en­force­ment dif­fi­cult, as well as the large num­ber of in­for­mal work­ers whose in­comes are not re­ported.

Econ­o­mists doubt the tax rev­enue tar­get can be reached.

Al­dian Talop­u­tra, econ­o­mist with in­vest­ment bank Mandiri Seku­ri­tas, said, “We see the tax col­lec­tion tar­get as too high now, with the de­clin­ing crude oil price” low­er­ing rev­enue from oil ex­ports.

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