July 24, 2020 / 11:16 AM / 20 days ago

Indonesia may return tax to companies amid pandemic: deputy finance minister

JAKARTA (Reuters) - Indonesia is considering returning tax paid by companies to support them during the coronavirus pandemic, the country’s deputy finance minister said on Friday, as the government seeks to retune parts of its economic stimulus.

Southeast Asia’s largest economy has budgeted 695.2 trillion rupiah ($47.81 billion) for its pandemic response, but some existing tax incentives had not been widely taken up, Suahasil Nazara said in an online interview.

“We’re thinking of giving a tax cashback. So if a business player has been compliant with its taxes all this time, we will return their 2019 taxes,” Nazara said, declining to comment on whether this could be all or part of a company’s tax payments.

The government may also scrap a minimum electricity payment for businesses in the pandemic, allowing firms to pay only for power consumed, he said, adding that power company Perusahaan Listrik Negara would get state compensation.

Government spending and a projected fall in revenue is pressuring Indonesia’s budget, with the 2020 deficit set to be the widest in more than a decade at 6.34% of gross domestic product.

The government has faced criticism for being slow to spend after only using 39% of the 2020 budget in the first semester.

Nazara said the finance ministry had been meeting other government agencies to accelerate the execution of programmes to try to prevent GDP from contracting this year after growing 5% in 2019.

DEBT MONETISATION

Indonesia has issued an emergency decree to waive a fiscal deficit ceiling of 3% for three years, while Bank Indonesia (BI) has agreed to buy 397.6 trillion rupiah of bonds this year and relinquish interest payments.

Nazara said this would help manage the proportion of interest expenses in the budget at 14%-15% annually, up from 12% pre-pandemic. Without the BI arrangement, the proportion would hit 17% in coming years, he said.

The question of whether to continue BI’s debt monetisation next year “is on the table right now, the answer of which we are formulating by moving forward little by little”, he said.

Fiscal policy would remain expansive for as long as needed, Nazara said, noting that a target to return the budget deficit to below 3% in 2023 could still be relaxed if there was political agreement.

For next year, government officials and lawmakers have been discussing a 4.7% deficit.

Additional reporting by Tabita Diela; Editing by Ed Davies

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