The following amendments in the Income Tax Law have recently been approved by the House of Representatives Special Committee on Taxation. The New Income Tax Law is expected to be ratified in August 2008 and to take effect starting January 2009.
1. Corporate taxpayers:
a. Tax rates
♦ For ordinary companies
- Corporate income tax will be reduced to 28% in 2009, and to 25% in 2010.
- A reduced rate of 50% from the normal rate in the case of businesses with gross turnovers
of Rp. 4.8 billion or less for Small Medium Enterprise
♦ For listed companies
- A 5% reduction off the normal tax rate will be granted, subject to the requirement that at
least 40% of their shares are held by the public.
b. Holding companies
♦ Passive holding companies can enjoy exemption from withholding Tax on dividend.
c. Deductible expenses
♦ Costs arising from the provision of infrastructure, educational facilities, and
donations/contributions to sport, the victims of natural disasters, and scholarships will be
allowed as deductible expenses.
2. Individual taxpayers
a. Tax rates
♦ On dividend - 10% and final in nature.
♦ On income tax - 30% max. for taxable income of more than Rp 500 million.
♦ The 10% tax layer has been eliminated.
♦ For individual taxpayers that use calculation norms, the ceiling will be increased from Rp 1.8
billion per year to less than Rp 4.8billion per year.
♦ For non-NPWP individual taxpayers, a higher rate shall be applied, with the following
- 20% higher than normal rate for personal income tax, and
- 100% higher for article 22 and article 23 income tax.
♦ The tax-free allowance for individual taxpayers will be increased to Rp 15,840,000 per year.
♦ Individual taxpayers with NPWP will be exempt from paying departure tax (“fiskal”) starting
2009, and such obligation will be abolished in 2011.
• The income on interest and discounts on bonds received or obtained by mutual fund companies
are now subject to income tax.
The draft amendment to the Income Tax Law is considered to be more pro-business and pro- taxpayers because many incentives are provided. There have been claims from the Directorate General of Taxation that these incentives will reduce tax revenue of up to Rupiah 40 billion, but in fact, that it is only based on statistical calculation. Looking at the country’s current dynamic economic condition, the potential loss from the tax incentives given in the new income tax law will be covered by the gradual increase in income brought about by the improvement in the economy.
Based on dynamic calculation, the potential income from tax will be bigger because compliance will increase due to the lower tax rates. For instance, the tax on dividend payments will be reduced from 20% to a maximum of 10%. Those who earn dividends and previously have never reported will now feel free to report because there will be no more benefit to hide it. Besides, the tax office will find out about it during the tax audit and this will create more problems for them.