Indonesia has the potential to loss tax revenues up to Rp887 trillion (US$56.34 billion) as the government' plan to reduce the corporate tax rate - Photo by President Office

JAKARTA (TheInsiderStories) – Indonesia has the potential to loss tax revenues up to Rp887 trillion (US$56.34 billion) as the government’ plan to reduce the corporate tax rate to 22 percent in 2021 from 25 percent now, 20 percent in 2023—and will also waive income tax on dividend obtained domestically for companies with up to 25 percent ownership.

This was revealed by the tax director-general at finance ministry Robert Pakpahan after a limited meeting with President Joko Widodo on Tuesday ()9/3). The director said the head of state had accepted the calculations.

“The results of the calculation of the potential loss of tax revenue actually reached Rp87 trillion if it fell directly. However, because the implementation was carried out in stages, the potential loss of tax revenue could shrink to Rp54 trillion in 2021,” Pakpahan said.

Meanwhile, related to the potential loss of tax revenue for the years after 2021 is still calculated by the government. The reason, the government wants to see the results of the implementation of the policy of reducing the tax rate in advance until 2023 to determine a more accurate calculation of lost revenue.

“Maybe two years after that, we decided. But, at least starting in 2021, we asked for direct guidance in 2021, but we discussed the fiscal management as well, what the economy will be like,” he explained.

Furthermore, Pakpahan claims that this policy plan has been communicated to the business world as a recipient of tax relaxation. One of them is the Asosiasi Pengusaha Indonesia (Apindo), which had ‘collected Widodo’s promise’ about the reduction of the corporate income tax rates.

“We have also talked to Apindo, who were asked to reduce the corporate income tax rates. But we only see that there must be some things added,” he said.

Earlier, Finance Minister Sri Mulyani Indrawati said the government will overhaul laws related to value-added tax, income tax, and general taxation. The corporate tax will be gradually lowered to 20 percent starting 2021 from 25 percent now and companies listing their shares may be subjected to a lower rate of 17 percent for a period of five years.

Lower taxes may help Indonesia compete with regional rivals like Vietnam and Thailand in luring companies seeking to relocate businesses from China as it spars with the United States on trade, the minister told reporters after meeting with President Widodo on Tuesday.

Widodo, who will inaugurate a second five-year term in October, has pledged to slash taxes and overhaul labor laws to draw billions of dollars in foreign investment to bolster growth that slowed to 5.05 percent in the second quarter, its slowest pace in two years.

“We will continue to focus our tax policy to be in line with international best practices,” Indrawati said. “We have calculated the possible impact on budget and tax changes will be managed to not put it under too much pressure,” she said.

The tax on dividend earned by local and foreign investors will be eliminated if it’s reinvested, Indrawati said. The revised regulations will also cover tax breaks extended to various sectors, she said, adding that individuals — foreign or domestic — will be required to pay taxes only if their stay exceeded 183 days.

The government will also slash the penalty on taxpayers who correct their returns after filing and owe money to the exchequer, the minister said. The changes to the tax laws will require parliament approval and Widodo, as the president is known, has said it will be a priority in his second tenure starting next month.

With Indonesia’s Internet economy forecast to swell to $100 billion by 2025, the tax rules will be amended to require foreign companies such as Google, Amazon, Netflix, Facebook, Twitter and more to pay corporate tax and collect, report and submit value-added tax, Indrawati said. That will also ensure a level-playing field for the digital players with the local firms, she said.

The minister revealed the government deliberately issued various new tax regulations to make companies in Southeast Asia’s largest economy draw more foreign investment amid a global slowdown.

“The president said that we must be able to respond to the needs of a dynamic, fast economy and from changes in fiscal policy in various countries,” she concluded.

US$1=Rp14,200

Written by Lexy Nantu, Email: lexy@theinsiderstories.com