25 August 2008

Income Tax – An Amendment Bill

The amendment of the Income Tax Law has been in the pipeline for some time. However, the list of problems identified with the amendments runs to some 770 issues. This means that Commission XI of the House of Representatives (DPR) and the Work Committee set up to resolve these issues has plenty of work to do.

It is nevertheless expected that this work will be resolved by the end of 2008 and the amended legislation will be passed by the DPR. The general consensus is that the amendments are technical in nature and are unlikely to trigger a significant ideological or policy debate.

The amendments will see a reduction in the number of taxation levels from the current five to just four. The maximum rate of taxation will fall from 35% to 30%. Salaries up to IDR 50 million will be taxed at 5%, salaries between IDR 50 and IDR 250 million will be taxed at 15%, salaries from IDR 250 to IDR 500 million will be taxed at 25%, and salaries above IDR 500 million will be taxed at 30%.

The amendments would see the removal of the Fiscal Tax that is paid by residents leaving the country. This will be phased in commencing in 2009 and be in full operation from 2011. The idea of phasing out the fiscal tax is based on the assumption that people will obtain a tax file number. Therefore, those who already have a tax file number appear to be the most likely to see an immediate benefit from this initiative.

Other amendments include incentives for those making contributions to religious activities; incentives for listed companies; incentives for micro, small, and medium enterprises; the taxing of revenue not currently classed as taxable objects (such as the Bank Indonesia surplus), and incentives designed to make Indonesia an attractive destination for both domestic and foreign capital investments.

The amendments are expected to ensure that Indonesia has in place a modern, effective, and efficient tax code that will contribute significantly to national development.


Katadia said...

Yes. Something good for me to share with the hubby for our non-chidren related conversation tonight.

Here in Cbr, we still don't have our first home and saving up is just hard since mr.hubby gets like almost half taken away for every dollar he earns. I am in awe with the tax system here because there's just no loophole (Indonesian: nggak bisa cari tambahan/obyekan). Kevin07 and pals increased the treshold to over 180k for the highest tax brackets for 2008-2009 from 150k plus last financial year. The baby bonus is going to be income tested with 150k as a treshold.

I guess with the huge size of the informal sector in Indonesia, it's hard to get taxation an efficient tax system. But hey, the big fish is in the formal sector, right?

That no fiscal tax incentive is a pretty good idea to get people to get their TFN.

Sorry for the long comment Rob. How many weeks is The Kid?

Rob Baiton said...

Hey KD...

No problemo on comment length. The longer the better, as it means you have more to say :D

We are thinking of migrating for the purposes of claiming the baby bonus. Apparently you can claim it up to 5 months after the kid is born...

About 26 weeks, this week.

Anonymous said...

OMG 5% is not a tax at all LOL (This statement comes out from my mouth after having lived here for 2.5 years)

.......the problem will the income tax is that, we will actually gladly pay for it, if we know where the money is spent, and definitely not into somebody's Prada bags.

Rob Baiton said...

Writer One...

I guess it is all relative. If you are on 50 million a year then 200K a month might be the difference in living from paycheck to paycheck.

However, that said I know people who have no qualms about spending 2.5 million on a good night out.

Yet, I agree, it is important to know where the tax revenue is going.