Page 11 - Working Paper (Tax Policy Options during Economic Downturn)
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DDTC Working Paper 1315

                                                  Figure 3 - Tax Revenue Growth Trends







                                         Jan-May 2013            Jan-May 2014            Jan-May 2015

                                               Income taxes O&G      Income taxes N-O&G
                                               VAT/LGST              Excises
                                               Import duties         Export taxes
                                               NRR O&G               NRR N-O&G
                                               NRR other             Total revenues

                    Notes: O&G stands for “oil and gas”, N-O&G is “non-oil and gas”. LGST is “luxury goods sales tax”; NTR is “Non-tax revenue”; NRR is “natural resource revenues”; “NTR other”
                    includes all non-tax revenues other than those from natural resources. Source: Ministry of Finance, World Bank Calculation 2015.

                   2015.  Furthermore,  export  tax  collection  sharply   enterprises with gross turnover of not more than
                   diminished as commodity prices such as CPO have   IDR 4.8 billion are subject to final tax at 1 percent
                   remained  below  the  verge.  Slower  GDP  growth   turnover; public companies that satisfy a minimum
                   also leads to feebler personal  income tax  and   listing  requirement  of  40  percent  and  other
                   final withholding tax relative to 2014. In an effort   conditions  are entitled  to a  tax  cut  of 5 percent
                   to reach the revenue target,  the government has   off the standard rate at a flat rate of 25 percent;
                   announced a number of policies. Some are already   new taxes on new oil and gas production sharing
                   implemented such as the reduction of certain     contract holders; possibility of exercising apparent
                   luxury goods and improve tax administration and   tax amnesty in 2016, etc.
                   compliance such as e-tax invoicing, improvement
                                                                       In essence, the government is providing tax
                   of tax  auditing  process  focusing on certain
                                                                    incentives  for  export-oriented  firms  and  labor-
                   business (e.g. corporations using transfer pricing,
                                                                    incentive sectors.  These  strategies  are done
                   oil and gas companies and coal mining companies)
                                                                    as complement  to capital  spending which  is
                   and wealthier taxpayers, and a six-month overseas
                                                                    currently down by 18 percent y-o-y relative to the
                   travel  ban  on  tax  debtors  issued  in  December
                   2014 . The government also waives of interest and   same period in 2014. As for 2016 Fiscal Year, the
                                                                    government has set its tax  revenue target  in the
                   fines on onshore tax arrears and late tax payment
                                                                    draft 2016 National Budget as shown in Table 4.
                                                                       As shown in Table 4, domestic taxes accounts
                      The government is in the middle of uncertainty
                                                                    more than 95 percent of total tax collection where
                   between its effort to increase tax revenue to meet
                                                                    income tax and value added tax are the two largest
                   the target and supporting economic  growth.  It
                                                                    component  of  domestic  tax  with  around  50.1
                   appears clearly to numerous possible tax  policy
                                                                    and  40  percent,  respectively  (see  Figure  4).  The
                   strategies  taken by the government that  are
                                                                    government sets tax revenue target based on 5.5
                   currently intended  to support the economic
                                                                    percent economic growth which needs extra efforts
                   growth  while maintaing  compliances such as
                                                                    to accomplish it. It is not absurd to increase more
                   jailing of large tax debtors; reduce taxpayers’ non-
                                                                    than  0.5  percentage  point  within  a  year  unless
                   taxable  income  to  IDR  36  million/yearly;  certain
                                                                    there is  major breakthrough done by President
                                                                    Joko Widodo  to force better budget  absorption
                   28. Law No. 19/1997, Article  29-32 (in the World Bank’s IEQ July   at the national and local level. Moreover, share of
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