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Indonesia's presidential candidates eye more tax on the rich, digital firms to raise revenue

Jakarta Post - January 8, 2024

Aditya Hadi, Jakarta – In order to turn their campaign promises into reality, the three presidential candidates have sought to boost state revenue by tweaking the country's taxation policies, such as by targeting the country's richest individuals, big tech companies and increasing the share of value added tax (VAT).

All the candidates share a common plan to establish a new state revenue agency that requires the Finance Ministry to spin off and combine two of its revenue arms, namely the tax and customs and excise offices.

However, their similarities end at this point, with each pair differing on which taxes they want to change and by how much.

Presidential candidate and the current Defense Minister Prabowo Subianto aims to increase Indonesia's tax ratio to between 13 and 14 percent of gross domestic product (GDP) compared to the current administration's 10.21 percent, which was realized last year.

Prabowo, who has chosen President Joko "Jokowi" Widodo's son Gibran Rakabuming Raka as his running mate, proposed lowering the tax rate for people earning Rp 10 million (US$644.5) or lower per month, which in theory should give people more disposable income, allowing more consumption and thus higher value added tax (VAT).

Edy Slamet, who represents Prabowo's campaign team told The Jakarta Post on Dec. 29, 2023, that the pair sought to lower the tax rate to 5 percent for people making less than Rp 120 million in annual taxable income. Currently, the threshold sits at Rp 60 million, meaning more income groups would be able to enjoy the lower rate, rather than paying the higher 15-percent rate.

The pair is also open to the idea of raising the non-taxable income (PTKP) threshold, which refers to the minimum amount of annual income that the government can exempt from income tax, and which could leave people with more disposable income.

Prabowo also intends to increase tax income from micro, small and medium enterprises (MSMEs) who have not registered as taxpayers, but exempt tax responsibilities for MSMEs that have been operating for less than two years.

Thomas "Tom" Lembong, cocaptain of the Anies Baswedan-Muhaimin Iskandar campaign team, said the pair sought to increase the tax ratio to between 13 and 16 percent by 2029.

To do that, it would introduce a wealth tax, which he saw as a better option than raising the PTKP threshold, as it could better target high-income individuals.

Moreover, the pair also wanted to impose a tax on industries that have benefited from a duopoly or oligopoly.

Anies' campaign team also plans to lower income taxes for lower and middle-income people, as well as taxes on education, healthcare and interest earned from time deposits.

Taxes will be increased for things that should be reduced, such as carbon emissions, single-use plastics and high-sugar food and beverages.

Prianto Budi Saptono, executive director of the Pratama-Kreston Tax Research Institute, told the Post on Thursday that raising the PTKP would raise take-home pay for all individuals, including the rich. However, the increment has a relatively small impact on buying power, according to him.

Tauhid Ahmad, executive director of the Institute for Development of Economics and Finance (Indef) said that candidates could consider stimulating consumption by keeping prices of basic necessities affordable, especially for staple foods, education and healthcare.

"Many people are working in informal sectors, which are not affected by tax rules, and [their consumption] would not change with such a rule," Tauhid told the Post on Thursday

He also suggested that candidates improve their compliance with existing tax rules instead of introducing new taxes like Anies' wealth tax.

However, Danny Darussalam Tax Center (DDTC) managing partner Darussalam said in 2021 that wealth-based taxation could be a better option in taxing the rich than personal income tax.

He argued that most of Indonesia's high-net-worth individuals relied on passive income that is subject to final income tax, isolating them from the effects of a higher progressive income tax.

Taxing tech companies

Meanwhile, Ganjar Pranowo and running mate Mahfud MD have set a tax ratio target of between 14 and 16 percent.

Like Anies, Ganjar also wants to tax carbon and waste products. He is also seeking to introduce a progressive luxury goods tax.

However, Ganjar's camp opted to move further by introducing more taxes foreign digital platforms. Heru Dewanto, who represents Ganjar's campaign team, told the Post on Thursday that the potential is still big, given the rapid growth of digital transactions from e-commerce, streaming platforms and online gaming.

"Thus, to realize tax fairness, the government needs to strengthen digital taxes in the country," he said.

According to him, Ganjar has no plan to change tariffs for income tax or VAT and wants to focus more on law enforcement to prevent evasion and avoidance of existing regulations.

Source: https://asianews.network/indonesias-presidential-candidates-eye-more-tax-on-the-rich-digital-firms-to-raise-revenue