February 5, 2020 / 7:53 AM / 16 days ago

Indonesia government seeks parliament approval for corporate tax cut, other tax changes

JAKARTA (Reuters) - The Indonesian government has submitted a sweeping tax bill to parliament that proposes corporate tax cuts and seeks to make internet giants pay more taxes, Finance Minister Sri Mulyani Indrawati said on Wednesday.

FILE PHOTO: Indonesia's Finance Minister Sri Mulyani Indrawati attends the World Economic Forum on ASEAN at the Convention Center in Hanoi, Vietnam September 12, 2018. REUTERS/Kham/File Photo

The tax bill is part of President Joko Widodo’s so-called “omnibus laws”, or legislation aimed at replacing dozens of overlapping laws seen as obstacles to investment, as he seeks to make good on last year’s campaign pledges to boost job creation and lift economic growth.

The bill was not made public, but Indrawati has previously said it would back cuts in the corporate tax rate, from the current 25% to 22% in 2021 and then to 20% in 2023.

The proposed changes would also make internet companies pay 10% value added tax (VAT) regardless of where they are based, among other things.

“Though we cut the corporate tax rate, we will widen our tax base and maximize our spending so that there is no economic shock. This must be maintained because there is a global economic slowdown,” Indrawati, a former World Bank managing director, told reporters.

Tax revenue is expected to be reduced by up to 86 trillion rupiah ($6.27 billion) a year from the corporate tax cut, Indrawati said.

The omnibus bills should help ease financial conditions through portfolio and foreign direct investment flows, and “make Indonesia a more attractive investment destination,” said Trinh Nguyen, senior economist with Natixis.

Parties in Widodo’s ruling coalition control 74% of the seats in parliament, removing any major hurdle to the passage of the bill. Widodo has asked lawmakers to complete their deliberation within 100 days.

Supratman Andi Atgas, an MP who leads a parliamentary body that oversees lawmakers’ agenda, said there was no certainty of meeting Widodo’s timeline.

“It depends on the substance of the bill,” he told Reuters by telephone. “In principle I agree with (the bill’s) framework to improve investment climate and Indonesia’s competitive edge.”

Another omnibus bill aimed to streamline bureaucracy and relax labor rules would be submitted to parliament this week, Coordinating Minister for Economic Affairs Airlangga Hartarto told reporters separately.

Indonesia’s economy grew at the weakest pace in three years in the fourth quarter of 2019, partly due to sluggish investment.

Additional reporting by Tabita Diela; Writing by Gayatri Suroyo; Editing by Shri Navaratnam

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