Finance Minister Sri Mulyani (second right) with Education and Culture Minister Muhadjir Effendy (second left), Director General of Taxation Ken Dwijugiasteadi (right) and Research, Technology and Higher Education Ministry Expert Staff for Infrastructure Hari Purwanto (left) attend the Pajak Bertutur event in Jakarta, Friday (11/8). Joined by students of all levels, the event provided information on issues of taxation.
JAKARTA, KOMPAS – The taxation scheme in Indonesia reflects the principle of fairness. The problem lies with the government’s poor capability in tax collection, especially with regard to the richest citizens.
This statement was made by Finance Minister Sri Mulyani Indrawati in Jakarta on Friday (11/8/2017). “The problem is more about tax collection, not the tax rates themselves. Our taxation system adopts a progressive scheme. The problem is whether or not we can effectively collect taxes from our richest citizens,” Sri Mulyani said.
A progressive tax scheme could be found in the country’s income tax policy, both for individuals and institutions, Sri Mulyani said. Under the scheme, citizens pay higher tax as their income gets higher – and vice versa. Sri Mulyani said the individual income tax policy reflected a progressive scheme.
The tax rate on income up to Rp 50 million a year is five percent. The tax rate increases to 15 percent for income between Rp 50 million and Rp 250 million, 25 percent for incomes between Rp 250 million and Rp 500 million and 30 percent for income above Rp 500 million.
As for institutional income, Sri Mulyani said the tax rate in Indonesia was on par with other countries in the region. The challenge was to prevent tax avoidance. Sri Mulyani also acknowledged that the final tax did not reflect principles of fairness. Final tax is tax directly imposed on gross income. This is relevant for businesses without proper bookkeeping, such as small enterprises.
Policy implementation
However, the final tax scheme is a much-debated issue, as it is imposed on income from assets commonly linked to the richest group, such as final tax on dividends, time deposits, obligation interests and property rentals. Sri Mulyani did not elaborate on this issue.
“We will continue to improve the taxation system. Recently, I asked the taxation team to study global tax policy practices to see if there are areas in our value-added tax or income tax policies, both for individuals and institutions, that can be improved to better achieve the principle of fairness,” she said.
Center for Indonesia Taxation Analysis executive director Yustinus Prastowo said tax administration and tax policies were not yet effective in narrowing the nation’s income gap. The existing scheme was in fact contributing to widening the gap.
