Simalakama Government: Raising Growth Tax Down, Not Raising State Budget Tax Boncos

Illustration (Photo: Doc. Ministry of Finance)

JAKARTA - The government's enthusiasm to reform tax regulations will be felt in the second half of 2021. This is reflected in the 'quick' process of discussing the Draft Law (RUU) of General Provisions and Tax Procedures (KUP), which was later changed its name to the Tax Regulation Harmonization Bill alias HPP.

The first discussion of the HPP Bill was carried out by the government, represented by the Minister of Finance Sri Mulyani, with the House of Representatives Commission XI on September 13 last. Until finally today, it is planned to ratify the HPP Bill at the 7th Plenary Meeting of the DPR RI at the Senayan Parliament Complex, Jakarta.

Presumably, the ardent enthusiasm of state officials to enact the HPP Bill was driven by the state's financial situation which was starting to struggle in overcoming the COVID-19 pandemic.

One of the main points of the policy reads that the government plans to increase the Value Added Tax (VAT) for the industrial sector.

Then, there is also a plan to add layers of personal income tax (PPh) levies to five layers from the previous four layers.

First, a 5 percent tax for those who earn Rp. 60 million per year. Second, a 15 percent tax for income of Rp. 60 to Rp. 250 million.

Third, a tax of 25 percent for income of IDR 250 million to 500 million. Fourth, 30 percent PPh levies for people with an income of IDR 500 million to IDR 5 billion.

And the fifth is a 35 percent tax for people who have income above IDR 5 billion in one year.

Researcher from the Institute for Development of Economics and Finance (Indef) Ahmad Heri Firdaus said the strategy to increase tax levies has the potential to have an impact on economic growth.

"On a macro basis, the increase in VAT will cause a decrease in purchasing power amid the low purchasing power of the people during the pandemic," he said in a webinar, quoted on Thursday, October 7.

According to Ahmad, if people's purchasing power is depressed, sales and industrial activities will automatically slow down.

Ahmad calculates that if VAT increases from 10 percent to 15 percent for the wealthy, it is believed that it will reduce economic growth by minus 0.02 percent.

"This will also threaten public consumption to drop by minus 2.05 percent," he said.

On the other hand, he considered that the expansion of the VAT levy was considered to have a positive impact on the state revenue sector.

"But what needs to be remembered is that the government must also expand its tax base (taxpayers) in accordance with the economic structure and characteristics of the community's economic group, including extensification of excise duty and optimizing PNBP (non-tax revenue)," explained Ahmad.

Just so you know, in the 2021 State Budget Law it is stated that the budget deficit reaches Rp. 1,006,4 trillion or 5.7 percent of gross domestic product (GDP).

As for next year, the 2022 State Budget Law states that the deficit will be in the range of Rp. 868.02 trillion or 4.85 percent of GDP.

Meanwhile, for 2023, the APBN is required to return to its initial level with the amount of the deficit not exceeding 3 percent of GDP. The mandate is contained in Law (UU) Number 2 of 2020 concerning State Finance.

In fact, this year's APBN has been helped by the steady performance of PNBP receipts in line with soaring commodity prices. Meanwhile, the tax sector is still unreliable because the domestic business world is still quite depressed due to the impact of the COVID-19 pandemic.

The opposite condition is projected to occur in 2022. PNBP is suspected to fall in line with the end of the commodity boom. This situation inevitably makes the government really hope for the tax sector to be able to contribute optimally to support revenue.