Monday, August 4, 2008

House Proposes Across-the-board Tax Cuts

A House of Representatives committee is proposing a cut in income tax for both businesses and individuals to help stimulate the economy amid record crude oil prices and a global economic slowdown.

The committee proposes the rate for businesses to be a flat 28 percent in 2009 and 25 percent in 2010, lower than the 35 percent rate set under existing regulations, the head of the House's special committee on the bill, Melchias Markus Mekeng, said.

He said lawmakers expected the bill to be "business-friendly," but that it would still be subject to further government deliberation.

"The new rates are expected to stimulate companies to expand businesses," he said, adding that the government would be allowed to further reduce the rate to as low as 25 percent for next year.

Dividend tax, which currently stands at 15 percent, would be eliminated too, Markus added, while the House was also working to raise the taxable income threshold for small- and medium-sized businesses from the current Rp 1.5 billion to Rp 2.4 billion.

The committee also seeks to revise almost all individual taxes in an effort to protect the purchasing power of low- and middle-income earners.

The committee proposes the tax rate for individuals in the Rp 13.2 million to Rp 50 million per year income bracket to be 5 percent starting next year. Currently, the 5 percent rate is subjected to individuals making between Rp 13.2 million and Rp 25 million per year.

The 13.2 million figure is called the taxable income threshold, meaning that a person earning less than that is exempted from paying income tax.

The threshold too, Markus said, would be raised, although the House and the government still differed on the size of the increase.

The government, he said, suggested a rise to Rp 15.86 million, although the committee proposed a figure of between Rp 24 million and Rp 30 million.

Marcus said both parties would continue to try to bridge the gap during upcoming hearing sessions.

Both the government and lawmakers have been seeking to raise the taxable income threshold to reduce to help people cope with surging consumer prices triggered by the rising prices of fuels and main commodities, said committee member Dradjad H. Wibowo.

If the bill failed to introduce the revised threshold, Marcus said, blue-collar workers whose minimum wage was about Rp 1 million per month would be burdened "as the government is likely to raise the minimum wage for blue-collar workers next year."

With the salary rise, blue-collar workers will have to pay tax, which will reduce their earnings and, in turn, their purchasing power, he added.

Director general of taxation Darmin Nasution earlier said the rise in tax threshold would cause the state a potential annual loss of Rp 39 trillion.

Source: The Jakarta Post, Tue, 06/10/2008 10:21 AM

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