Jakarta – Director General of Taxation Robert Pakpahan says fiscal incentives granted to businesses to attract investment will adversely affect his office's tax collection efforts this year.

He cited as an example the cut in the final income tax (PPh) rate for small and medium enterprises (SMEs) as well as cooperatives from 1 percent to 0.5 percent, which would cost the state up to Rp 1.5 trillion (US$105 million) in forgone tax revenue this year.

"Because of the rate cut, the revenue will decrease by Rp 1 trillion to Rp 1.5 trillion," said Robert, as quoted by kontan.co.id on Thursday.

The government revised regulations on tax holidays this year to simplify applications for incentives for investors investing at least Rp 500 billion. The government is now preparing several other regulations, including on tax allowances and incentives for export-oriented industries.

Robert, however, said the impact was only temporary, because companies were expected to use the incentives to develop their businesses and more people were expected to open new businesses.

"The objective of the incentives is to help SMEs ease their tax burden in the hope that the incentives could be used to boost their businesses," he said, adding that the number of taxpayers among SMEs could expand by 50 percent.

According to Finance Ministry records through May, tax revenue collected by the tax office this year has reached Rp 484.3 trillion, or 34.02 percent of the Rp 1.42 quadrillion target stated in the 2018 state budget. (bbn)

Source: http://www.thejakartapost.com/news/2018/06/28/fiscal-incentives-to-take-toll-on-tax-revenue.html