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The Wrong Time to Increase Taxes

Translator

TEMPO

Editor

Laila Afifa

5 June 2021 22:59 WIB

TEMPO.CO, JakartaThe government's plan to revise the General Taxation System Law is proposed at the wrong time. the government should cut spending rather than trying to increase tax revenues.

The government and the House of Representatives (DPR) should not force through the revision to the General Taxation System Law this yeyar. With the current economic uncertainty, the government must be realistic: this is not the right time to be trying to increase tax revenues. If this is forced through, rather tahn recovering, our economy could collapse. The plan for the fifth revision to Law No. 6/1983 on general provisions of taxation procedures was sent to the DPR last week. Included in the 2020 National Legislation Program, all that remains is for the bill to be discussed by the government and the DPR. In the bill, the government wants to apply multi-tariff value added tax and increase personal income tax. Thi s is all to increase revenues.

As well as this, although it is not explicitly stated in the bill, the government has also promised a 'tax amnesty' for those who did not participate in the same program five years ago. This plan was put forward by Coordinating Minister for the Economy Airlangga Hartarto, who seems to be passing on the aspirations from businesses who have been keen on expreessing this from the outset. There are reports that the finance ministry not very comfortablewith this plan.

The lack of unanimity from the the governent over this proram as well as over the procedures for the second tax amnesty provide more reasons for delaying the deliberations. The bill aimed at improving Indonesia's tax ration must not turn into vehicle for the interests of a small number of tycoons.

It must be admitted that our tax ratio now is low. In 2020, it was only 8.3 percent of the GDP. This is clearly concerning because countries with strong economies in general have high tax ratios. However, we should realize that the fall in the tax ratio last year was mostly triggered by our worsening economic performance. Economic growth has been negative for the last three quarters - although the trend is now positive. The fall in tax revenues led to dramatic reduction in government income. It is predicted that this year will not see a full recovery.

Given this fall income, the government should save money by allocating funding only to priority sectors. For example, the plan by the ministry of defense to procure primary weapon systems should be postponed. So should the plan to build a new capital in East Kalimantan. Preisdent Joko Widodo must be at the forefront of efforts to tighten budgetary discipline. He must not be swayed by the idea of increasing growth through large-scale spending. If state funds are used up buying imported goods - such as weapond, submarines and fighter planes - those large spending would not affect economic growth.

In the future, tax reforms should still be a priority. But beforehand, the government must build a tax system trusted by businesspeople and citizens alike.

Read the Complete Story in Tempo English Magazine



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