Indonesia has one of the lowest tax participation rates in Asia. The tax ratio (tax receipts/gdp) is less than 13% and NPWP holders represent less than 2% of the 120 million workers in Indonesia. The recent increase in the Fiscal Tax is specifically aimed at encouraging more people to register with the tax office. The government has stated that this will be a temporary measure and the Fiscal Tax will be abolished in 2011.
The Indonesian government believes (and I suspect rightly so) that there are many people earning incomes above the tax threshold of RP1,000,000 per month who are not paying tax. Increasing the tax base and the ongoing program of tax reform are an essential part of the country’s development.
It’s not surprising that the increase in the Fiscal Tax has caused upset in the expat community. One member here, SG, even has the ridiculous idea that it is somehow a conspiracy by the Indonesian government to suppress its own people. Others are complaining that the local tax officers don’t know how or are refusing to process applications for spouses or kitas holders who are unemployed. Some, like Jimbo, see the sense of it.
It’s really very simple. If you don’t want to pay the Fiscal Tax you should register for income tax. Present your NPWP card at the Fiscal Tax office in the port of departure and you will be exempt. You do not need to be employed to register for tax. It amazes me that so many people find these simple administrative tasks so difficult.
What’s also amazing is that the chattering classes are crying about the lack of infrastructure spending yet are against tax reform initiatives. Despite what some think, the revenue from tourism in Bali, for example, is not even close to being enough to build the infrastructure that Bali needs.
Tourism profits were smashed by the Asian economic crisis in 1997 and the Indonesian Rupiah is still one fifth of the value it was before the crisis. Megawati’s government and the current government have had to commit a large percentage of the national income to pay down the foreign debt from 100% of GDP to around 40% of GDP now and maintaining subsidies that became almost crippling after the devaluation of the rupiah.
The costs of servicing private debt also sky rocketed since loans for most major projects, such as building resorts, were denominated in US dollars. The fiscal position of the private sector mirrors the public sector except for subsidies. Debt repayment and labour costs are where are large part of the tourism revenue goes.
The salaries paid in Bali are almost entirely untaxed. Of course many are under the threshold but you would think that rich expat businesses would be rewarding their staff. It’s interesting, for example, that an expat can run a business generating millions of dollars in revenue and yet not mention anything about their own staff being registered for tax.
The World Bank puts Bali’s local government revenue at around US$120M and yet the local government has recently inaugurated US$100M worth of projects including the first stage of the Denpasar Sewerage Development Project. The majority of the funding came from the federal and Japanese governments which puts the lie to the rivers of gold some imagine are pouring out of the tourism sector.
Interesting also that such a major project as the Denpasar Sewerage Development Project doesn’t rate a mention by the chattering classes. No, they would rather condemn the government for the random cases of cholera without acknowledging that the most effective way to control cholera is to build sanitation infrastructure.
Tax reform measures such as the Fiscal Tax increase will increase the tax base which in turn will provide more funds for the infrastructure that Indonesia so desperately needs. It would be nice to see the expat community get behind these reforms instead of carping endlessly about their miserable lives in paradise.
The Indonesian government believes (and I suspect rightly so) that there are many people earning incomes above the tax threshold of RP1,000,000 per month who are not paying tax. Increasing the tax base and the ongoing program of tax reform are an essential part of the country’s development.
It’s not surprising that the increase in the Fiscal Tax has caused upset in the expat community. One member here, SG, even has the ridiculous idea that it is somehow a conspiracy by the Indonesian government to suppress its own people. Others are complaining that the local tax officers don’t know how or are refusing to process applications for spouses or kitas holders who are unemployed. Some, like Jimbo, see the sense of it.
It’s really very simple. If you don’t want to pay the Fiscal Tax you should register for income tax. Present your NPWP card at the Fiscal Tax office in the port of departure and you will be exempt. You do not need to be employed to register for tax. It amazes me that so many people find these simple administrative tasks so difficult.
What’s also amazing is that the chattering classes are crying about the lack of infrastructure spending yet are against tax reform initiatives. Despite what some think, the revenue from tourism in Bali, for example, is not even close to being enough to build the infrastructure that Bali needs.
Tourism profits were smashed by the Asian economic crisis in 1997 and the Indonesian Rupiah is still one fifth of the value it was before the crisis. Megawati’s government and the current government have had to commit a large percentage of the national income to pay down the foreign debt from 100% of GDP to around 40% of GDP now and maintaining subsidies that became almost crippling after the devaluation of the rupiah.
The costs of servicing private debt also sky rocketed since loans for most major projects, such as building resorts, were denominated in US dollars. The fiscal position of the private sector mirrors the public sector except for subsidies. Debt repayment and labour costs are where are large part of the tourism revenue goes.
The salaries paid in Bali are almost entirely untaxed. Of course many are under the threshold but you would think that rich expat businesses would be rewarding their staff. It’s interesting, for example, that an expat can run a business generating millions of dollars in revenue and yet not mention anything about their own staff being registered for tax.
The World Bank puts Bali’s local government revenue at around US$120M and yet the local government has recently inaugurated US$100M worth of projects including the first stage of the Denpasar Sewerage Development Project. The majority of the funding came from the federal and Japanese governments which puts the lie to the rivers of gold some imagine are pouring out of the tourism sector.
Interesting also that such a major project as the Denpasar Sewerage Development Project doesn’t rate a mention by the chattering classes. No, they would rather condemn the government for the random cases of cholera without acknowledging that the most effective way to control cholera is to build sanitation infrastructure.
Tax reform measures such as the Fiscal Tax increase will increase the tax base which in turn will provide more funds for the infrastructure that Indonesia so desperately needs. It would be nice to see the expat community get behind these reforms instead of carping endlessly about their miserable lives in paradise.
