Indonesia Advisory

Tax revenue, the largest single income contributor to the state budget, may fall below target next year as the economy slows down due to the impact of the global economic downturn, the tax office head warns.

"The risk of not achieving the target is definitely there," Finance Ministry's director general of taxation Darmin Nasution said Tuesday, responding to a question on whether next year's tax revenue might drop as Indonesia's economy would probably only expand at around 5 percent.
Under the 2009 state budget, the economy is actually expected to grow by 6 percent, but many if not most analysts say this is now optimistic.

According to the Economist Intelligence Unit (EIU) -- a top global research and advisory firm with more than 40 offices worldwide, the economy will only expand by 3.7 percent next year as exports and investments fall, undermining consumption.

"We will prepare measures to be able to achieve the target," Darmin said, adding that his office would start profiling for taxpayers paying value added tax.

The directorate general of taxation has started profiling for taxpayers on income tax to boost the rate of tax compliance.

For next year, the office is targeted to collect Rp 650.3 trillion (around US$60 billion) in tax revenue, making up around 70 percent of the total revenue forecast of Rp 985.7 trillion.

Most of the efforts to improve tax revenue will be focused on boosting the number of tax registrations (NPWP), with only around 6 million currently paying taxes.

Among these efforts are plans by the directorate general of taxation to raise the travel tax from the existing rate of Rp 1 million (US$87.91) for people going abroad via airports and Rp 500,000 via seaports.

Melchias Markus Mekeng, a member of the House of Representatives' commission XI overseeing financial affairs, said the government had the authority to raise the travel tax. "The law (on income tax) only says registered taxpayers don't have to pay travel tax starting from 2009."
According to the law, all Indonesian citizens will be exempt from paying travel tax by 2011.

In addition to boosting the number of individual taxpayers, the office will also tap income tax from corporations as this is about five times bigger than income tax on individuals.

The impact of the global recession has been felt in the country as value added tax suffered a significant drop in October, he said. Month-to-month growth of tax revenue was usually about 40 percent this year, compared to last year, but dropped to 21.55 percent in October.

"It means the impact of the global financial crisis affected October's tax revenue."

Between January and October, the office received Rp 463.98 trillion in revenue, a 43.07 percent increase from Rp 324.30 trillion in the same period last year.

Darmin said tax revenue between January and October was 86.8 percent of the total tax revenue expected in the revised 2008 state budget, but surpassed the revenue expected in the first 10 months of 2008.

Darmin said revenue from value added and luxury taxes would drop sooner than from income tax as businesses expected a slower economy in 2009, reducing imports that contributed to value added and luxury taxes.

"Value added and luxury taxes are affected, particularly due to the slowing growth of value added tax on imported products," he said.

Source : The Jakarta Post, Aditya Suharmoko November 12 2008 http://www.indonesia.go.id/