This content is from: Local Insights


To improve competitiveness with its neighboring countries, Indonesia is now in the process of amending its income tax law. If implemented, these amendments would boost tax revenues in the long run. A downside to this effort is that reduced income tax revenues will be incurred in the short term. The finance department of Indonesia has calculated that almost Rp5 trillion ($557 million) would be lost if the amendment were effected immediately. Because of this unpopular short-term result, the government is not expected to pass this law until the presidential election is complete in September 2004.

The draft proposes, among other things, to: (i) impose tax on government treasury papers (to have the same tax treatment as bonds in general); (ii) impose tax on coupons received by mutual funds; (iii) lower the corporate tax rate to 25% (from 30%) over five years; (iv) lower individual tax rates and increase the tax bracket responding to such lower rates; and (v) impose higher tax rates for those who do not possess tax identification numbers. The draft is still under discussion among the officers of the directorate general of taxation and the finance department of Indonesia.

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