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Indonesia mulls cut in corporate, value-added taxes JAKARTA - Faced with the bleak prospect of a continuing decline in foreign direct investments, Indonesia is mulling the possibility of cutting corporate and value-added taxes after its 2004 general election. The move, revealed by Finance Minister Boediono at the World Economic Forum in Kuala Lumpur, is also aimed at improving the government's tax collection base, which is among the lowest in the region.
'I am asking my staff to assess whether we could lower corporate and value-added tax rates in future years as we widen their bases,' Mr Boediono said in a prepared text. He did not elaborate on the idea. But Raden Pardede, senior economist at PT Danareksa Sekuritas, told BT the government is reacting to increasing competition for investments by other regional countries that have begun to lower corporate taxes.
Given the pressure to keep reducing the government's deficit, the earliest Jakarta can follow its neighbours is in 2005. 'There is pressure on the government Budget until 2004 but after that, based on current assumptions, we will have a Budget surplus,' said Mr Pardede. 'So there will be room for lowering corporate and value-added taxes.'
Indonesia now has one of the highest tax regimes in the region. Corporate tax is 40 per cent and value-added tax is 11 per cent. The government also levies an additional 10 per cent tax on goods and services consumed. Since the onslaught of the financial crisis, the country has had difficulty winning foreign direct investment. This dropped 39 per cent in the first eight months of the year to US$3.5 billion - and the trend does not look to be improving any time soon. While businessmen welcomed Mr Boediono's idea, they say that improving Indonesia's legal structure and overhauling its corrupt judiciary is more critical.
'There has been a lot of discussion over the past few days about enticing foreign direct investments back to Indonesia,' said Rudy Balmater, business adviser at Ernst & Young. 'It's a good move to lower corporate taxes but the business community is more concerned about the security of investments.'



Posted in Economy @ 09 October 2002 00:02 CET by Jeroen · 'Blog' RSS feed · permalink






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