TO QUESTION TAX IMPOSITION ON SMALL BUSINESS

The Government’s plan to impose 1% tax on total turnover on small-and-medium business [UKM] had to face objections. They who protested argued that tax imposition on UKM 1% from turnover was unfair to traders. The argument was that if tax calculation was based on turnover, while turnover did not necessary represent profit, this was felt as unfair. For comparison the role for upper class corporations, tax were based on profit, not turnover.

               

So the policy was different from the tax policy applied on corporations where tax calculation was based on profit. Supposedly the government maximized tax income from corporations and wealthy companies. Allegedly many big corporations underpaid taxes or were tax evasive.

               

Today income from income tax [Pph] was only Rp82 trillion, which was still below the amount of fund for oil fuel subsidy which was enjoyed by the upper class. Supposedly tax calculation for UKM was based on profit because most likely UKM ran their book keeping system no matter how simple it might be.

               

Previously the Director General of Tax, Ministry of Finance stipulated tariff for income tax [Pph] of 1% which was final for tax subjects or individuals or companies who received income from business with gross turnover of not more than Rp4.8 billion in one fiscal year.

               

The Directorate General of Tax would impose tax of 1 percent for UKM which had income of less than Rp4.8 billion per year. The Pph tax was obligatory every month. This stipulation was regulated in the Government’s Regulation [PP] no. 46 year 2013 on Pph tax on income and business received or obtained by tax subjects having certain turnover.

               

The PP Government Regulation dated June 12, 2013 also described criteria for tax subjects: individuals or bodies who could not benefit from this Regulation. Among others food street vendors, hawkers, door-to-door salesman, trottoar-based tents etc. Meaning each month texpayers would pay Pph tax of 1% of their turnover.

               

Meanwhile Ministry of Finance Chatib Basri said that this tax imposition had the objective of enabling UKM to have access to bank for credit application. In the future, UKM could develop their business. This was some sort of incentive for the informal sector who were potential but not bankable.

               

Spontaneously UKM rejected the policy. They felt they were being burdened by the 1% tax from turnover for UKM. The tax was felt as extra burden to production cost for businessplayers. Even the Indonesian Chamber of Commerce KADIN rated that the regulation, which was effective as per mid 2013 was a process of disabling small business by the Government. Production cost would increase, not to mention basic electricity tariff would increase every year, and now oil fuel too. So they rated the Government as not strengthening UKM, but on the contrary paralyzing them.

                   

According to UKM circles the competition was getting harder. UKM players could not even compete against local traders, not to mention to compete against international players.

               

In view of future probabilities they rated that tax for small business [UKM] was a process of disabling UKM itself. Supposedly the Government tried to lessen UKM burden in facing great challenges. Ideally the Government should find ways to improve connectivity in UKM distribution network system toward 2015 instead of increasing burden for small business.

               

It was noteworthy hat amidst some public circles who opposed, some business players who were members of the Association of Young Indonesian Entrepreneurs [HIPMI] stated that they had no objections to the policy if the Tax Dept. to impose 1% tax UKM who owned turnover of less than Rp4.8 billion per year.

               

They were hoping that the imposition of 1% monthly tax could bring positive impact on UKM instead of just axing their income. According to HIPMI, to condition of UKM in Indonesia today was still was below that in the neighboring countries. UKM which were members of HIPMI supported all Government’s policy, especially in tax paying. However, HIPMI also called out for Government’s attention to ease access for UKM to banking facilities, legality of operations and permit application procedures after implementation of the regulation per July 1, 2013.

               

Furthermore, the new policy would definitely step up Indonesia’s economic growth. On the other hand the UKM economic growth in Indonesia needed the Government’s serious attention, as soon Indonesia should be ready to face the Asean Economic Community [AEC] to be held in 2015 next. With NPWP tax identification number, access to capital would be opened wider for UKMN players.

               

If the tax for UKM was put in effect, there should be strict control to make sure the regulation would be effective. The point was that this income tax process was a process of self assessment. This would tend to make UKM turn into reluctant taxpayers. And yet supposedly this regulation was advantageous to traders. The point was that the amounts of tax pay to personal money lenders which was around 5% of profit.

               

It should also be that this regulation was deviation prone. It was possible that tax subject reported their asset as less than the actual amount to evade high tax. So a special team was needed to ensure the truth of the reported asset. Naturally the Director General of Tax denied that the tax on UKM was rated as unfair, it was beneficial instead for them.

               

The Director General of Taxation was aware that UKM ran their business without book keeping, cash transaction based and they were not bankable so it was hard to count their profit-or-loss precisely. In this case th Dir. Gen of Tax had found a simple way to calculate turnover and tax to be imposed on UKM, i.e. by determining deemed the cost to be deducted from gross profit.

               

Indirectly, the imposition of 1% tax in turnover was already inclusive of profit or loss calculation for taxpayers. The regulation also brought other incentives like taxes lower than normal tariff as stipulated in Article 17 Law of Tax Income.

               

In the simulation calculation by the Dir. Gen of Tax, assuming that profit of UKM was around 7% of turnover, the 1% tax based on turnover would only be equal to 14.3% of business profit. The tariff was less than the percentage stipulated in Article 17 Law on Added value, i.e. 25% for companies or 15% for individual taxpayer making profit of Rp50 million – Rp250 million per year. So it was not true that imposition of tax was injustice; on the contrary it allowed convenience, simplification and incentive for UKM in fulfilling their tax obligations.

               

It was to be understood that every tax subject, personal or company, had met the subjective requirements i.e. Indonesia Citizen, business unit set up in Indonesia, and objective requirements, i.e. having income, having NPWP tax identification number and performing his/her taxpaying duties well.

               

Hence, as long as UKM players had met subjective and objective requirements as regulated in the Law of Taxaton, they were obliged to be taxpayer and fulfill their duties by paying taxes and reporting taxes due. Perhaps one point missed by the Dir. Gen. of Tax in regard to the 1% for UKM was the background and objective of such tax. This was the one point unexplored which caused resistance among UKM.

               

Supposedly the Government illuminated UKM by telling them that the tax imposed would be returned to them in the form of direct or indirect benefits. An example of direct benefit was physical infrastructure for doing business like in traditional markets. Meanwhile indirect benefit was opportunity for them to ba bankable and creditable in the banking sector as they had become tax subject and possession of NPWP Tax ID number.

               

So it right and reasonable that the Government imposed tax on UMKM as tax would uplift their honor and credibity. For example, in the effort to encourage UKM to enter the formal sector. This would be some sort of incentive to enter the formal sector as there were many sectors which we potential but not creditable. By willingly paying taxes, UKM could have access to capital from banks.

               

Apparently today many UKM traders were not paying taxes properly; the result was that banks were reluctant to extend credit for their business development. And yet UKM were badly in need of capital. Now UKM must be aware that the taxes imposed were for their own good.

               

Collected tax from millions of UKM was plentiful enough to support state’s income which was eventually useful for physical development to support national economy. The number of UKM in Indonesia was quite convincing. Based on data of the Ministry of Cooperatives and Small and Medium Business as per June 2013, there were 55.2 millions UKM or 99.98% of total business units in Indonesia.

               

They were able to employ 101.72 million workers or 97.3% of total labor force in Indonesia. They also contributed 57.12% to national GDP which now had come to Rp8,200 trillion. Because of the large amount and significant contribution to national economy, the 1% tax from UKM turnover would be truly meaningful for fiscal health of the APBN State Budget on the income side. (SS) 

Business News - July 03,2013