Indonesia Passes Tax Law to Add Income Bracket, Raise VAT
(Bloomberg) -- Indonesia’s parliament approved a law to let the government add a top income bracket, increase the value-added tax and roll out a second round of amnesty program next year.
Lawmakers agreed to pass the tax law at a plenary session on Thursday, a boon to the government’s efforts to expand its revenue base and rein in its budget deficit. The bill is the second in a series of Indonesia’s omnibus laws, which aims to revise many existing laws at once.
“We need our tax system to be healthy, fair and able to act as an instrument for our people’s prosperity,” Yasonna Laoly, minister for law and human rights, said in parliament.
Southeast Asia’s biggest economy has struggled to fill its coffers to fund its pandemic stimulus and restore economic growth to above 5% next year. The tax law, which has been discussed in parliament since late June, is set boost state earnings and help the government bring the fiscal deficit under the legal limit of 3% of gross domestic product by 2023.
The finance ministry is set to impose the new tax measures next year, including higher VAT rate, expanded individual income tax brackets, and carbon tax arrangement for coal power producers. The government also plans to offer another round of tax amnesty, which brought in around 147 trillion rupiah ($10 billion) of state revenue back in 2017.
Only the Prosperous Justice Party, or PKS, opposed the tax law, saying higher VAT could hamper the economic recovery and arguing against the amnesty program. The party holds 50 out of parliament’s 575 seats.
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