Indonesia plans to raise threshold at which personal income tax is due

MAY 27, 20155:40 PM

[JAKARTA] Indonesia's finance minister said on Wednesday the government plans to raise by nearly 50 per cent the income threshold at which individuals start to owe income tax, in a bid to boost purchasing power and economic growth.

Bambang Brodjonegoro told a parliamentary committee he is considering increasing the threshold for an unmarried adult to 36 million rupiah (S$3,679) a year from the current 24.3 million rupiah.

He did not say what changes might be made for married couples or individuals with dependents.

Lifting the income level at which tax starts to be due "will increase people's purchasing power although this could disrupt (state) revenue," Mr Brodjonegoro said.

Tax collection is a problem in Indonesia. Mr Brodjonegoro said only 10 million of about 255 million people submitted tax reports last year. He estimated about 45 million people are working and are supposed to pay some tax.

This month, Indonesia reported first-quarter economic growth of 4.71 percent, the slowest since 2009. There have been signs of waning consumption, ranging from weak car and motorcycle sales to a drop in Bank Indonesia's April consumer confidence index to 107.4, the lowest since September 2013.

If the threshold on tax obligations is changed, the move could hinder the the ministry's target of a jump in tax collection. Indonesia targets total tax revenue at 1,489.3 trillion rupiah this year, up 30 per cent from last year, which analysts call unrealistic.

But the minister's plan "is good despite it affecting the overall tax collection," said Yustinus Prastowo, an analyst with local think-tank Center for Indonesia Taxation Analysis. "This will protect people in the lower income group and increase buying power." Mr Prastowo said that to fulfil the target, the government "can focus on collecting from higher income group." As of May 22, the state tax revenue reached 416.8 trillion rupiah or 28 per cent of the target, compared with 422 trillion rupiah in the same period of 2014.

REUTERS