JAKARTA, Oct 12 (Jakarta Post/ANN): Indonesia's Finance Ministry expects the newly passed Harmonized Tax Law (UU HPP) to raise its annual tax collection between 9.23 and 17.94 per cent over the next four years, bringing in the much-needed funds to reconsolidate Indonesia's fiscal position.
New provisions introduced in the law are expected to add between Rp 140 trillion (US$9.86 billion) and Rp 353 trillion in annual tax revenue between 2022 and 2025, raising the total annual revenue to between Rp 1.64 quadrillion and Rp 2.32 quadrillion over the same time period, according to a Finance Ministry presentation shown at an online press conference on Oct 7.
Maintaining the corporate income tax rate at 22 per cent, raising ultra-high net individuals' (HNWI) personal income tax rate to 35 per cent and raising the value-added tax (VAT) rate to 11 per cent starting next year are among the new provisions.
“Most of the provisions will take effect in 2022. We estimate a Rp 140 trillion increase in tax revenue in 2022 and Rp 150 to Rp 160 trillion a year later,” Deputy Finance Minister Suahasil Nazara said during the press conference, adding that the tax office would work tirelessly to realize the target.
Should everything go as planned, Indonesia’s tax to gross domestic product (GDP) ratio would reach 9.22 per cent next year and 10.12 per cent three years later, higher than the expected 8.56 per cent for this year, the ministry concluded.
The House of Representatives passed the HPP on Thursday as the government works toward reinstating a budget deficit gap of 3 percent of GDP by 2023. The cap was lifted last year to finance Covid-19 relief programmes.
Finance Minister Sri Mulyani Indrawati said during the same press conference that holding the corporate income tax rate at 22 percent was necessary as "an effort to preserve the tax revenue", and that certain goods and services would be exempted from higher VATs to not hurt the general public.
The law also introduces a minimum carbon tax rate of Rp 30,000 per ton of carbon dioxide equivalent (CO2e), a second tax amnesty with slightly higher rates compared to the 2016 amnesty, a plan to use citizenship identity numbers (NIK) as taxpayer identification numbers (NPWP) to streamline identification and an easing of punishments to promote compliance.
Krystal Tan, an economist at one of Australia’s biggest banks, ANZ, wrote in a research note that the new law signaled the government’s commitment to fiscal consolidation and discipline, which would help retain market confidence.
However, she argued it might be not enough, as the country had long suffered from a weak revenue base.
ANZ data shows that Indonesia's state revenue-to-GDP ratio declined from over 14 per cent in 2010 to under 11 per cent last year.
The bank estimated that raising the VAT rate would boost state revenue by 0.3 percent of GDP, introducing the second tax amnesty would boost by 0.7 percent of GDP, while retaining the corporate income tax rate would save by 0.2 percent of GDP.
Meanwhile, the halved carbon tax floor rate of Rp 30,000 per ton from the initial proposal of Rp 75,000 per ton is expected to result in a modest revenue boost, unless the rate rises or the tax's coverage is expanded to industries beyond coal-fired power plants (PLTU).
“Restoring the 3 percent of GDP deficit limit by 2023 remains a challenge,” Tan wrote.
Publicly listed Bank Permata economist Josua Pardede, on the other hand, believed the new law could cut the tax shortfall next year, but warned that the VAT rate hike might hamper the recovery of household purchasing power next year.
“This has consequences of slowing the economic recovery,” he said.
The bank projected that the rise in VAT rates would result in economic growth between 4.5 to 4.9 per cent in 2022, much lower than the government's estimate of 5.2 per cent. - Jakarta Post/ANN
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