Jokowi chal­lenger moots tax cuts to stim­u­late econ­omy

Gulf Times Business - - BUSINESS -

In­done­sian pres­i­den­tial can­di­date Prabowo Su­bianto is propos­ing deep tax cuts to stim­u­late South­east Asia’s largest econ­omy, copy­ing the play­book suc­cess­fully used by US Pres­i­dent Don­ald Trump.

Su­bianto and his run­ning mate San­di­aga Uno will lower com­pany and in­di­vid­ual taxes by be­tween 5 and 8 per­cent­age points over five years and widen the tax-to-gross do­mes­tic prod­uct ra­tio to at least 16% from about 11%, ac­cord­ing to An­thony Bu­di­awan, an econ­o­mist ad­vis­ing the pair’s cam­paign. Lower taxes will lead to greater com­pli­ance and al­low the gov­ern­ment to cut its bor­row­ings to fund its bud­get, he said. The econ­omy has taken cen­tre-stage in In­done­sia’s pres­i­den­tial elec­tion cam­paign, with Su­bianto tar­get­ing in­cum­bent Joko Wi­dodo’s pol­icy of adding to record gov­ern­ment debt to fi­nance build­ing roads, ports and dams worth bil­lions. The swelling of gov­ern­ment debt and its high for­eign own­er­ship were fac­tors in a mar­ket sell- off last year, which saw the ru­piah tum­ble to lev­els not seen since the 1997-98 Asian fi­nan­cial cri­sis.

“Our cor­po­rate tax is one of the most ex­pen­sive in the re­gion,” Rizal Ramli, a for­mer fi­nance min­is­ter, told re­porters in Jakarta on Fri­day. “Lower tax rates will make In­done­sia more com­pet­i­tive.” In­done­sia now has a top per­sonal in­come tax rate of 30% and a cor­po­rate tax rate of 25%. Su­bianto, who’s pop­u­larly known as Prabowo, is tak­ing on Wi­dodo, known as Jokowi, in a re­match of the 2014 elec­tion, which he nar­rowly lost to the for­mer fur­ni­ture busi­ness­man and the first non-elite to oc­cupy the pres­i­den­tial of­fice. The for­mer gen­eral has picked Uno, a busi­ness-savvy for­mer pri­vate eq­uity in­vestor, and has blamed the high pub­lic debt and slump in the cur­rency as ex­am­ples of Jokowi’s mis­man­age­ment of the econ­omy. Click here for a guide to In­done­sia’s long, loom­ing elec­tion sea­son

If elected, Prabowo will also in­tro­duce a pro­gres­sive in­di­vid­ual tax rate, with the rich pay­ing more to en­sure a more eq­ui­table so­ci­ety, Bu­di­awan said. A cut of be­tween 5 and 8 per­cent­age points in cor­po­rate tax can boost eco­nomic growth by as much as 0.7 per­cent­age point a year in the short term and de­liver a 1 per­cent­age point in­crease in the tax-to GDP-ra­tio, said Har­ryadin Ma­hardika, a mem­ber of the pair’s eco­nomic team.

While Jokowi’s gov­ern­ment has failed to in­crease the tax ra­tio de­spite in­tro­duc­ing an amnesty plan while it con­tin­ued to rely on rev­enue from com­modi­ties and debt to fi­nance the bud­get, a Prabowo ad­min­is­tra­tion will over­haul the tax bu­reau­cracy to make it more ef­fi­cient, Ma­hardika said. “Ev­ery­one un­der­stands the ca­pa­bil­ity of Prabowo and Sandi. They are en­trepreneurs and know what they are do­ing,” Ma­hardika said. “The cur­rent ad­min­is­tra­tion gives false hope. We won’t do that. We can make In­done­sia great again as Prabowo said.” Jokowi, who came into of­fice promis­ing to de­liver an­nual growth of 7%, is set to miss the tar­get by a wide mar­gin as the econ­omy has ex­panded at about 5% dur­ing his ten­ure. But the in­cum­bent en­joys a lead of 20 per­cent­age points in opin­ion polls over Prabowo after he cre­ated mil­lions of new jobs and spent bil­lions of dol­lars to add roads, ports and air­ports to cut lo­gis­tic costs in the ar­chi­pel­ago.

The in­cum­bent, who’s paired with Ma’ruf Amin, a con­ser­va­tive Mus­lim cleric, will fo­cus on fis­cal and struc­tural re­form and de­vel­op­ment of man­u­fac­tur­ing and ex­por­to­ri­ented in­dus­tries to cre­ate more jobs, ac­cord­ing to Jokowi’s elec­tion man­i­festo.

The Prabowo-Uno com­bi­na­tion will also in­volve more pri­vate sec­tor par­tic­i­pa­tion and end the dom­i­nance of state-owned en­ter­prises in projects and opt for more mul­ti­lat­eral free­trade agree­ments than bi­lat­eral pacts. The pair’s agenda also in­cludes more pro­tec­tion for cer­tain lo­cal in­dus­tries like Trump has done. Ma­hardika said Uno will act as an eco­nomic am­bas­sador trav­el­ling the world to fur­ther In­done­sia’s trade and eco­nomic in­ter­ests.

High­lights of Prabowo’s eco­nomic plan in­clude pledges to: Re­duce re­liance on palm oil for bioen­ergy and tap about 10mn hectares of avail­able land to pro­duce crops that can make ethanol; open up tourism, en­ergy and cre­ative in­dus­tries for pri­vate in­vest­ment; pro­mote in­dus­tri­al­i­sa­tion and en­sure back­ward and for­ward link­age; and es­tab­lish an in­de­pen­dent body to col­lect taxes.

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