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The Indonesian Tax Structure

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The Indonesian Tax Structure The Indonesian Tax Structure By: J.S. Uppal * » • "'/ .j> . A ' . , X • ' i'fx : ., Ringkasan > , Sebagai alat fiskal yang dipergunakan untuk mengarahkan perekonomi• an nasional mencapai tujuan soslo-ekonomlnya, maka perpajakan memegang peranan penting dalam pembangunan bangsa. Dalam perekonomian negara- negara sedang berkembang, seperti Indonesia, tujuannya meliputi pula untuk mendorong pertumbuhan ekonomi, memperluas lapangan kerja, stablllsasl, dan pemerataan pendapatan serta kesejahteraan yang lebih adll. Kebijaksanaan perpajakan yang tepat akan dapat mengoptlmalkan alokasi sumber-sumber pendapatan nasional terhadap formasl modal dan pe• nanaman modal balk dl sektor swasta maupun pemerintah. Dan, dengan peng• gunaan sumber-sumber pendapatan tersebut secara eflsien maka akan dapat mendukung pertumbuhan ekonomi yang lebih pesat. Peningkatan tabungan nasional yang terjadi karenanya juga akan memberi peluang yang lebih balk bagi kredit investasi. Selain Itu, perobahan tarif-tarlf pajak yang dlatur menurut permintaan "aggregate " akan dapat membantu pencapaian stabilitas. Sedangkan kewajar- an pajak balk secara vertlkal maupun horizontal pada glllrannya akan men• dorong pemerataan pendapatan dan kesejahteraan melalui keadiian di bidang perpajakan. Berdasarkan prinsip-prinsip baik mengoptlmalkan sumber pendapatan nasional secara adll, penerimaan yang memadai, administrasi yang sederhana, maupun fleksibilitas dalam penetapan pajak tersebut di atas dan dengan me• lihat peranan perpajakan di Indonesia selama kurun 5 sampai 10 tahun yang lalu, penulis menganalisa struktur pajak Indonesia. , * Dr. J.S. Uppal is a Professor of Economics, State University of New York at Albany, Albany, New York, U.S.A. Presently, he is Visiting Professor of Economics Gadjah Mada University, Yogyakarta, Indonesia. He gratefully acknowledges the assis• tance of Drs. Chairul Ichsan & Drs. Jamaluddin Ahmad, Lecturers in Economics Syiah Kuala University, Banda Aceh and Drs. Soetrisno Prawirohardjono, Faculty of Econo• mics, Gadjah Mada University, Yogyakartti, Indonesia. EKI. Vol. XXXIV No. 1, 1986 Taxation, as a compulsory levy by state, is no more meant only for raising adequate revenues for operation of government. Taxation is now regarded as a powerful fiscal tool to guide the national economy towards achievement of her socio-economic goals. For an underdeveloped economy, like Indonesia, embarked on development planning, these objectives are eco• nomic growth, fuller employment, stabilisation and more equitable distribu• tion of Income and wealth. Economic growth requires host of economic policies, particularly diversion of a proportion of national Income to capital 'formation' and investment both in the private and public sectors; optimal allocation and efficient use of national resources. Taxation can play a domi• nant role In promoting savings by discouraging unnecessary consumption. In• cluding consplclous consumption and expenditure on wasteful ceremonies. Taxation can promote a system of Incentives to work, risk taking and Invest• ment. Through taxes and subsidies, negative externalities can be minimised and positive externalities promoted, both In the fields of Investment and consumption, to achieve optimal allocation of resources. Tax structure can also promote creation of job opportunities through Investment credits, depreciation allowances and thus, diversion of Investment to labor Intensive technology In a labor abundant underdeveloped economy like Indonesia. Changes In tax rates can assist In achieving stability through managing aggre• gate demand. Changes In tax rates can be discretionary ie deliberate tax changes, according to desired level of stability, or automatic, in which case tax rates are so designed that level of revenue varies automatically with changing levels of national income. While the automatic tax policy Is highly preferred for various reasons, particularly, for ease of administration and political feasibility, Its success, however, depends on the degree of elasticity or buUt-ln-tax flexibility In tax stmcture. The Important goal of more equi• table distribution of Income and wealth can be achieved, to some extent, through an appropriate tax policy; Horizontal as well vertlcle tax equities can assist egalitarian policies and promote justice In taxation. Thus, tax system has an Important role to play In achieving a country's socio-economic goals, besides raising adequate revenues for financing public expenditure. Because of the crucial potential of tax system to achieve national goals, economists judge the tax structure of a county with reference to some well known canons of taxation such as: revenue adequacy, administrative ease; built-In-fiexlblllty; optimal allocation on resources equity. We will analyse the Indonesian tax structure with these tax principles In a latter section. -:• si-:-: : . :=^<>5,;^:'-i%_j4-' ."i,i't;''V- . - . 5 - .. •/. : ' ; - - : ,' . 42 EKI. Vol. XXXIV No. 1, 1986 An overview of the Indonesian Tax System Inter-Governmental Finance: Indonesian administrative system is based on federal structure, central government, provincial governments (first stage regions), Kabupaten (admi• nistrative area below the provincial level), Kotamadya (municipality with the same administrative status as Kabupaten), Kecamatan (administrative area below the Kabupaten of Kotamadya) and desa or Kelurahan (village). The division of revenue sources between the different levels of govern• ments Is governed by several regulations: particularly Law No. 32/1956, Balance of Inter-Governmental Fiscal Relation, Law No. 5/1974, Principles of Regional Government. These laws provide for allocation of some sources of revenues and subsidies to subnational levels of government. Besides their own sources, sources of regional governments (taxes, service charges, Retri- busl, profits from local enterprises, departmental-dlnas-revenues), there are receipts from central government, which fall Into two categories: Assigned Revenues and Grants, as discussed below: -,.-:y^:^ • d: (i) Assigned Revenues: Taxes, royalties etc., levied by the central govern• ment but assigned wholly or In part to regional governments. These Include Ipeda (luran Pembangunan Daerah): tax on property - land and urban buildings. 10 percent of Ipeda may be defrayed in assess• ment and collection costs, 10 percent of revenue net of collection costs, is assigned to provincial governments, and the remaining 90 percent Is paid to the Kotamadya (municipalities) and Kabupaten. Ipeda revenues are assigned In development budgets. From the F.Y. 1986 - 87, Ipeda has been replaced by a new "property tax," which also Includes the wealth tax. Provinces also receive an allocation from duty charged on petrol sales at 1 rupiah per litre sold within the pro• vince. In addition, regional authorities receive levies on 70 percent of the royalties on timber extracted from their territories. Royalties and cesses provide 3.7 percent of provincial revenues and 2.6 percent of regional government funds as a whole. However, there are great variations among provinces on the royalties and cess as proportion of provincial budgets. These range from 0.3 percent for D.I. Yogya• karta to 8 percent for Lampung for the 1978/79 budget. (11) Grants (Subsidi Daerah Otonom): Grants from the Central government constitute an Important source of revenues for regional governments. There are various types of grants which include: (i) Subsidi Daerah EKI. Vol. XXXlVNo. 1, 1986 43 Otonom which covers the salaries and responsibility allowances plus 66 percent of the food allowances of civil servants In provincial, Kabu• paten and Kotamadya governments; (11) Provincial Development Grant (Bantuan Pembangunan Dati I), also known as Inpres Proplnsi or Inpres Dati I, for development projects undertaken by provincial governments; (111) District Development Grant (Bantuan Kabupaten), given to all Kotamadya and Kabupaten on the basis of their population, with a minimum of 50 million rupiah for each jurisdiction, for use In develop• ment projects; (Iv) Elementary Education Grant (Bantuan Pembangun- ,V an Sekolah Dasar), given to Kabupaten and Kotamadya for expendl- ,3, ture on elementary education; (v) Public Health Grant (Bantuan Sarana Kesehatan); (vi) Village Grant (Bantuan Desa) given by central govern• ment to each village to be spent on materials - labor to be provided communally and freely by villages. Most of the allocations have been made for small road, bridge and water Supply projects; (vll) Several operation and Maintenance Grant (Subsidi Pembiayaan Penyeleng• garaan Sekolah Dasar), Following are the major sources of revenue for different levels of go• vernment: TaUel Sources of Rareaue for Central Government in Itulonesii, 1980/81 - 1985/86 Proportion of Total Revenue, 1980--81 1984- 85 A. Ope 78.80 1. DirectTaxer 63.38 Incnme Tax 2.18 15.S* Nnivnil Cnrpniatino Tax 4.14 OU Cnipniatrnn, Tax 51.98 48.7 Otfaeis (rvealtli txx, itamp duty inteiaatuirvidend- myalty tax) 5.6 0.7 2. Indirect Taxea 12.60 18.4 5.14 Sale, tax-impnrta 1.40 7.2" 4.22 4.2 ImpnrtTax 5.04 3.1. Expert Tax 0.57 0.4 • ;>-i> Otheri 0.25 0.4 Nnn Tax Receipt, (licence teen and anvieea) 2.84 3.1 B. Develnpment Receipt! (Pmpam and Prnjed aide) 21.20 18.9 Nota: a. Pqjak Penghasfltn Perieoranpn/Private income tax and non-oU corporation tax, b. Value added tax on goods and aervicet and sale* tax on luxury goodM, Source: Bin Puiat Stxtiatik, StatiMtik Indonttia 1984, Jakarta, pp. B72-7S and 1985-86 Budget t 44 EKI. Vol. XXXIV No. 1, 1986 Table II Sources
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