Indonesians fear higher costs with new taxes
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An array of new taxes and higher royalties to be implemented in the coming months, affecting property purchases, retail sales and natural resources such as coal, has got businesses worried over rising costs. It could also affect investments.
From later this year, buyers of residential properties worth more than 2 billion rupiah (US$154,000) will have to pay a luxury tax of 5 per cent on top of an existing 5 per cent property sales tax. Now, only properties worth more than 10 billion rupiah are subjected to a luxury tax as well as a sales tax.
In retail sales, including groceries, a new levy of 3,000 rupiah will be imposed on any transaction exceeding 250,000 rupiah.
For coal, the energy ministry plans to raise royalties, or the amount coal miners have to pay to the government for every rupiah of coal sold, from the current 3 per cent to 7 per cent, depending on the quality of coal, to 7 per cent to 13.5 per cent.
The move to raise existing and introduce new taxes comes as President Joko Widodo seeks to increase state coffers to fund infrastructure building to stimulate the economy.
Indonesia saw its lowest gross domestic product (GDP) growth in five years last year, at 5 per cent, even as large amounts of funds are needed for infrastructure projects such as roads, ports and power plants. Its budget this year targets 1,484.6 trillion rupiah of tax revenue. Last year, it recorded 982 trillion rupiah or 90 per cent of what it had targeted from tax collections.
But analysts and industry players are saying the move to raise taxes may backfire, and could instead heighten the cost of doing business and make the investment climate tougher.
Natsir Mansyur, deputy chairman of the Indonesian chamber of commerce (Kadin), told The Straits Times the timing for introducing new taxes is not right.
"We understand the government wants to boost revenue, but they must first look at the current business condition domestically and globally. Businesses overall are not doing well now. Demands are slowing. The government should instead expand the tax coverage," said Natsir, who is also a finance company owner.
Agreeing, other industry players say this will further dampen a less-than-robust consumer spending and could affect profit margins. Tutum Rahanta, deputy chairman of the Indonesian Retailers Association (Aprindo), said: "At the end of the day, consumers will get the burden because retailers will pass this additional cost on to the consumers."
Other than raising taxes, the government is also looking at strengthening tax collection.
Indonesia's tax revenue - with 120 million in its workforce - was about 11 per cent of GDP last year, ranking below countries with smaller populations like Malaysia whose tax revenue to GDP was 16 per cent or Singapore whose figure stood at 14 per cent.
Finance Minister Bambang Brodjonegoro has an ambitious goal to raise tax revenue to 30 per cent, saying this would be made possible largely by higher compliance through a better data collection system. He also said the government will step up measures in catching rogue tax officials to prevent fund leakages.
However, he needs to overcome stumbling blocks such as lax tax collection by an understaffed and ill-trained tax agency and poor compliance such as tax evasion or under-reporting.
According to former central bank chief Darmin Nasution, many private firms, particularly the family-controlled ones, do not make dividend payments and instead mark up costs to cover the family's daily spending. This is how they avoid paying taxes as money going from a firm to a shareholder must be in the form of dividends, which are taxable.
Tax collection is also compounded by the sheer size of the country - a sprawling archipelago - which makes enforcement difficult, as well as the large number of informal workers whose incomes are not reported.
Economists doubt the tax revenue target can be reached.
Said economist Aldian Taloputra with investment bank Mandiri Sekuritas: "We see the tax collection target as too high now, with the declining crude oil price" lowering revenue from oil exports.
