Higher Non-Taxable Income and Indonesia’s Directorate General of Taxes Strategies

Indonesia’s Directorate General of Taxes (DGT) has a very strategic role in collecting tax revenue to supply most of the nation’s budget to run the country in order to provide facilities for the citizens and promote their prosperity and welfare. The Ministry of Finance of Republic Indonesia has issued a regulation (PMK 162/PMK.011/2012) that raises the non-taxable income (PTKP) threshold of individual taxpayers to Rp 24.3 million (US$2,524) per year, up from Rp 15.8 million previously, in a bid to maintain the population’s purchasing power amid the global economic slowdown. This regulation is become effective by January 1, 2013.

The increase in the non-taxable income would increase the purchasing power of low-income people. Indonesia relies heavily on its demographics and its substantial domestic consumption rates to maintain economic growth during the current global downturn. The government has set an economic growth target of 6.8 percent in the 2013 state budget.

The new regulation also has implications for families. Individual taxpayers with an unemployed spouse will receive an additional Rp 2.02 million income tax exemption under the tax structure, up from Rp 1.32 million in previous regulations. Married couples filing jointly are entitled to a total of Rp 48.6 million in non-taxable income, up from Rp 31.6 million, if both spouses are employed.
Families are allowed a tax exemption on another Rp 2.02 million of their income per year for each child they have, an increase from Rp 1.32 million earlier, for up to a maximum of three children.

PTKP increasing plan is predicted to make the government lose tax revenue amounting to IDR12 trillion per year. So, DGT need strategies to anticipate the lose tax revenue due to the new non-taxable income policy. Generally, there are two DGT’s strategies to anticipate due to the low tax revenue:

  1. National Tax Cencus (SPN) :One of the main items on the agenda in 2013 is to continuously increase the taxpayer base. Indonesia’s national budget is highly dependent on tax receipts (70%), but the public’s awareness of the importance of paying taxes is still very low. Since the implementation of the Sunset Policy back in 2008, the government was able to encourage people to register for a Taxpayer Identification Number. So far this has not been effective enough to encourage them to pay taxes and report their tax objects. Based on the Directorate General of Taxes’ data as of September 2011, only 8.5 million people (7.73% out of the 240 million total population) filed their annual income tax return in 2010. Of the 12.9 million active businesses and 22.6 million total enterprises, only 466,000 enterprises (3.6%) paid their taxes last year. The DGT has recently escalated its efforts to increase taxpayer compliance by launching the National Tax Census which is part of a concerted drive to broaden Indonesia’s taxpayer base and reduce tax evasion.
  2. Tax Intensification : Due to the low tax revenue, Directorate General of Taxation increased income tax revenue target for the plantation, manufacturing, and mining sectors in order to boost tax revenue in 2013.  The DGT may review and convince that Annual Tax Return (SPT) submitted by the taxpayers based on self-assessment principle has been correct. In addition, the DGT shall remind the taxpayers that if they fail to exercise their tax obligations, the DGT will undertake actions ranging from announcing the Taxpayers’ name in the newspapers, not allowing the taxpayers to leave Indonesia to taking physical coercion (gijzeling). Moreover, the Directorate General of Taxation will also tighten supervision on taxable income deduction cost related to promotional cost. Based on the Directorate data, many companies are known include large scale of promotion cost.

Overall, Directorate General of Taxes (DGT) confirmed its commitment to strive and work harder in order to secure the tax revenue in 2013. By securing the tax revenue, then the target of Rp1.031, 8 trillion can be achieved.

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