As only Rp 30 trillion (US$2.04 billion) of the government’s tax breaks for businesses and individuals had been realized to date, far below its intended target, Finance Minister Sri Mulyani Indrawati is urging more businesses to take advantage of the facility.
Sri Mulyani said this meant that just 24.6 percent of the Rp 120.6 trillion earmarked for corporate tax incentives had been used, and stressed that the tax office would work hard to help businesses apply for the facility.
“The tax office is still working to let taxpayers know that we are ready to help them through tax relaxation, debt restructuring and support for MSMEs [micro, small and medium enterprises] in the form of interest subsidies, working capital loans and social assistance,” she said on Thursday.
The government had so far recorded Rp 2.18 trillion in personal exemptions, Rp 7.3 trillion in import tax exemptions and Rp 10.2 trillion in corporate tax deferrals, she said.
The coronavirus crisis has sapped tax revenue amid cooling business activities, with the government collecting just Rp 750.6 trillion in tax revenue in September. The figure represents a 16.9 percent year-on-year (yoy) decline and makes up 62 percent of this year’s tax revenue target, due to the sharp tax cuts for imports and corporate incomes.
The government has earmarked a Rp 695.2 trillion stimulus package to revive the economy and strengthen the healthcare system, but it has only disbursed below 50 percent of the fund, seven months since the start of the Indonesian outbreak.
“The tax office is facing difficult challenges in collecting tax at a time when companies are struggling to survive,” said Sri Mulyani. “We will support them through the hard times, but if they have the ability to pay tax, then we will collect it.”
The International Monetary Fund (IMF) has said that the country needs “broad-based” tax reform to boost revenue in the long term, so the country can minimize the impact of spending cuts while funding development projects.
In an email interview with The Jakarta Postin mid-October, IMF mission chief for Indonesia Thomas Helbling suggested the country to implement a medium-term strategy that aimed to raise 5 percent of gross domestic product (GDP) in additional tax revenue.
“It would reduce the burden on expenditure adjustment, which would minimize the drag on growth from the planned fiscal consolidation, and thereby create fiscal space for high-priority development spending such as education and infrastructure,” he said.
Indonesia is planning to achieve fiscal consolidation through policies that aim to reduce its budget deficit and national debt once the coronavirus-induced economic downturn subsides. The policies plan to bring down the deficit back to below 3 percent by 2023, as the COVID-19 response is projected to widen the deficit to 6.34 percent of GDP this year and 5.7 percent of GDP in 2021.