Indonesia plans to cut corporate income tax to 20%

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JAKARTA (TheInsiderStories) – The Indonesian government is planning to cut corporate income tax (PPh) rate to 20 percent this year, from 25 percent at present, as a move to stimulate economic activities, attract investment and ultimately increase tax revenues.

“We hope to discuss it (tax cut) this year. We will certainly cut it to 20 percent,” said Finance Minister Bambang Brodjonegoro on Monday, during a hearing with the Commission XI of the House of Representative (DPR) which overseas banking and financial issues.

He said although the corporate income tax is cut, it remains “competitive” compared to other ASEAn countries.

“We’re seeking a figure that’s in line with neighboring countries but also not too far from other Asean countries. So we think 20 percent is still competitive in Asean.”

Singapore, as a case in point, imposed corporate income tax of 17 percent, mainly as a “growth” instrument, not a main source of government revenues. Indonesia, in the past, treated corporate income tax as a main source of revenues. The cut of corporate income tax may indicate the government is changing its paradigm, by using corporate income tax as a means to spur growth.

The Indonesia’s plan to cut the tax rate comes as the government is falling short of its revenue collection targets, putting its 2016 budget spending plans at risk.

Michael Jeno, member of the House Commission XI of PDIP Faction, supports the government plan. He said reducing corporate income tax would not automatically reduce tax revenues, but it will be the other way. He believes lower income tax will improve companies compliance to pay income tax, hence ultimately boosting tax revenues.

The Finance Ministry data shows that the realzied government income up until March 31, reached Rp247.6 trillion, lower than realized income in the same period last year at Rp247.6 trillion. Meanwhile, realized expenditures reached Rp390.9 trillion, higher than realized expenditures in the same period last year of Rp367.7 trillion.

The lower income was partly due to lower-than-target revenues from all sources, including realized tax revenues and non-tax revenues.

As a move to boost tax income, the government is currently proposing tax amnesty to the Parliament. The Parliament is yet to approve it due to pros and cons over the proposal. (*)

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Source: The Insiderstories
Indonesia plans to cut corporate income tax to 20%

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