Indonesia Eyes Top Income Tax Bracket, Raises VAT in New Bill
Indonesia Eyes Top Income Tax Bracket, Raises VAT in New Bill
(Bloomberg) -- Indonesia is looking to raise its value-added tax and delay reducing the corporate income levies as part of a package of reforms aimed at raising government revenues to narrow its budget shortfall.
The tax reform proposal, which is set to be deliberated next week at the parliament plenary session, will introduce a levy on carbon-intensive activities, albeit at a much lower rate than initially proposed, according to a document reviewed by Bloomberg. Tax amnesty could also be offered next year.
“To increase economic growth that is sustainable and support the acceleration of recovery, a fiscal consolidation strategy is needed that focuses on improving the budget deficit and increasing the tax ratio,” according to the document. Indonesia seeks to bring its budget deficit within its statutory limit of 3% of GDP by 2023 from an estimated 4.85% next year.
Here are the latest tax changes:
Value-Added Tax
- Indonesia will increase its VAT to 11% starting April 2022 and 12% in 2025 from its current rate of 10%
- An earlier plan to waive the VAT exemption of basic goods and services, such as food, education, health and financial services, has been dropped amid concerns it could fan inflation and hurt consumption
- Domestic VAT was the largest contributor to tax revenue last year, bringing in 298.84 trillion rupiah or around 25% of total tax collections
Carbon Tax
- Indonesia will impose a tax of at least 30 rupiah per kilogram of carbon dioxide equivalent, less than half the previously proposed rate of 75 rupiah, after industry associations opposed the plan
- Coal plants will be the first in line to be subject to the tax, set for April 2022
- The government will establish a carbon tax roadmap that will be reviewed by parliament, detailing the priority sectors for taxation, renewable energy development plans, as well as emission reduction strategies
Income Tax
- Indonesia will add a new 35% income tax bracket for individuals earning more than 5 billion rupiah a year ($349,000)
- Annual incomes of as much as 60 million rupiah will be subject to a 5% tax rate, up from the previous threshold of 50 million rupiah
- Corporate income tax, which was supposed to fall to 20% next year, will remain at its current level of 22%
Tax Amnesty
- Another round of tax amnesty will run in January to June 2022, allowing taxpayers to pay past obligations without penalties
- Assets obtained from 1985 to 2015 will be subject to a final income tax of 6%-11%, while those obtained from 2016 to 2020 will see a higher rate of 12%-18%
- A lower rate will be applied to those who invest in natural resource processing, renewable energy or in government securities for at least five years
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