JAKARTA, Oct. Oct (Reuters) – Indonesia’s parliament on Thursday approved a government proposal to amend tax rules, with Deputy Speaker Muhaimin Iskander saying he would raise value-added tax rates next year and scrap planned corporate tax cuts.
The law introduces a 35% income tax, new carbon tax, and tax waiver program for those earning more than 5 5 billion (35 351,000) a year.
But while some business groups and analysts have questioned the timing of the planned tax hike, the economic recovery from the epidemic appears to be still fragile.
According to a copy reviewed by Reuters, the law calls for an increase in the VAT rate on sales of almost all goods and services from 10% to 11% and by 2025 to 12%.
It also abolished planned corporate tax cuts and introduced higher income tax rates, new carbon taxes and new tax waiver programs for the wealthy. (Click for more info)
Only one of the nine political parties opposed the approval in Parliament.
“With the use of this legislation, including fiscal reform and ensuring more targeted government spending, we hope we can strengthen economic reform and accelerate poverty reduction,” Yasonna said.
The impact of inflation due to VAT hike was seen as “limited and minimal”, he added.
The government has made some concessions from its original proposals. Initially, it had simultaneously demanded an increase in VAT to 12% and proposed a minimum tax for companies with suspected tax evasion losses.
Some analysts said the measures should raise taxes next year, potentially reduce the fiscal deficit to the current official estimate of 4.85% of gross domestic product (GDP) and help officials narrow the gap to another 3% in 2023. It is unknown at this time what he will do after leaving the post.
Joshua Pardede, an economist at Jakarta-based Bank Paramatman, had expected a positive impact on long-term financial stability, but warned that the VAT hike would destroy the purchasing power of low-income earners, who are more sensitive to rising prices.
“We hope the government can improve the effectiveness of policy spending next year, especially for social protection.”
The Mall Operators Association, which has been lobbying for a three-year delay in raising VAT, has expressed its condolences.
“The removal of the ban does not end the effect of Kovid-1 of. The increase in VAT on the current epidemic will have a big impact on offline sales,” said President Alphonse Vidjaja.
The tax exemption program for the first half of next year has also been criticized. Opposition members said it was unfair to introduce a debt waiver while raising the VAT rate, while economists said repeated debt waiver programs could pose a moral risk.
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