TEMPO.CO, Jakarta - Finance Minister Sri Mulyani Indrawati said that she will study plans to reduce tax rate for micro, small, and medium enterprises (SMEs) in accordance with President Joko "Jokowi" Widodo's request. The government said that it is planning to lower SMEs tax rate from one percent, to 0.25 percent.

The reduction will be aimed at encouraging SMEs growth. "If the President said something, it is our duty to accept the instructions and prepare," Sri said over the weekend.

According to Cooperatives and Small-Medium Enterprises Minsiter Anak Agung Gede Ngurah Puspayoga, President Jokowi’s request to lower SMEs tax rate was made to respond to demands from SMEs representatives.

Chief of the Fiscal Policy Agency Suahasil Nazara said that the government is currently studying possible effects and outcomes of the reduction. Nazara added that the tax rate reduction will be included as one of the Finance Minsitry's agendas for proposing a revision on the Income Tax Law to the House of Representatives.

Nazara asserted that many often compared Indonesian income tax rate with rates applied in other countries. Whereas, Nazara argued, Indonesia's development needs cannot be compared to other countries. "That is why if we review the income tax, it would not only consider the tariffs and competition with neigboring countries. There are other aspects, [such as] needs for development funding," Nazara said.

Currently, Nazara said that the government is attempting to increase development budget by reducing energy subsidy. Back in 2014, funds for the energy subsidy reached up to Rp. 350 trillion. The funds were later channelled to fund infrastructure projects in 2015 and 2016. "Next year, energy subsidy will only be set at Rp 77 trillion and infrastructure project funds will be set at Rp 387 trillion," Nazara stated.

In an effort to collect such massive amount of funds, the government will improve tax compliance. Currently, Indonesia's tax payment ratio had only reached 11 percent, and has been targeted to reach 13 percent this year. In other words, the government must be able to generate an additional Rp 25 trillion of tax revenue.

TEMPO NEWSROOM