3 Important Things to Increase Tax Revenue for Economic Recovery
PIKIRAN RAKYAT DAILY – (11/8/2021) The government currently needs large funds to deal with the Covid-19 outbreak, which is going on for two years now and to finance economic recovery. Meanwhile, annual tax revenues never reach the planned targets.
To increase state revenue from taxes, the government needs to expand the tax base (types of goods and services subject to tax), tax ratio, and increase VAT (value added tax) from 10 percent to 12 percent.
All three are included in the proposed Fifth Amendment to the Amendment Law No. 6 of 1983 concerning General Provisions and Tax Procedures (RUU Taxation), which is being discussed with the People’s Representative Council of the Republic of Indonesia (DPR RI).
This was conveyed by an Economic Researcher from the Institute for Economic and Community Research (LPEM) of the Faculty of Economics and Business, Universitas Indonesia (FEB UI) Christine Tjen, and a researcher at the Center for the Study of Economic Policy (PPKE) Universitas Brawijaya Imanina, in a statement, Tuesday 10 August 2021.
“The new Taxation Bill, (made) to accommodate taxation both at home and abroad. Improvements to the Tax Law are not only happening in Indonesia but also internationally.” Christine Tjen said.
She gave as an example, the government’s proposed VAT increase of 12 percent from the current 10 percent. The proposal to increase VAT is not only made by the Indonesian government. Other countries that are members of the OECD (Organization for Economic Cooperation and Development), even increase VAT by 15 percent.
“Thus, the planned domestic VAT increase of 12 percent is still below the international VAT increase which averages 15.4 percent.” Christine Tjen said.
In addition to proposing an increase in VAT from 10 percent to 12 percent, according to Christine, the government for the principle of justice and equality is considering imposing VAT at 12 percent and 15 percent or with a multi-tariff system.
For certain products and services, a VAT of 12 percent will be imposed. Meanwhile, other services and products will be subject to VAT of 15 percent. The imposition of multi-tariff VAT, the argument from the government is to improve justice and equality. According to the government, there will be special tariffs, such as prime quality rice from abroad, which will be subject to a higher VAT rate than domestic rice, which is both sold in high-end supermarkets.
Meanwhile, rice sales in traditional markets are not subject to tax. The reason, to show justice and equality. However, the implementation of a multi-tariff system will result in a more complicated administration.
“Are we ready to apply Multi-Tariff VAT?” asked Christine Tjen.
As an economic observer and researcher, Christine admits that she agrees more with the imposition of a single-tariff VAT. That is 12 percent for all types of service and product tax objects. The reason is because this system is simpler and easier to implement by the government and other parties.
“A Multi-tariff system will lead to inefficiency, because the administrative costs are higher. If our tax system is okay, we can apply multiple tariffs. But is our core tax ready or not (to apply multiple tariffs)? Although in 2024 a core tax will be applied. Are we ready to apply multiple tariffs?” Christine stated.
The same opinion was conveyed by a lecturer who is also a researcher at the Center for the Study of Economic Policy, Universitas Brawijaya Malang, Imanina. According to her, during the Covid-19 pandemic, it is undeniable that state revenues are under heavy pressure. Almost all sectors of the economy experienced a weakening and led to suboptimal tax revenues.
Imanina considers it wise if the government increases VAT by 12 percent and expands the tax base (the basis of goods and services that will be taxed).
“To expand the tax base during this pandemic, there are 2 important things that need attention. First, it is necessary to be careful in sorting out which sectors are not affected and which sectors are affected by the pandemic. This is an important concern in efforts to expand the tax base during the pandemic.” Imanina said. Second, is the matter of time or timing. According to Imaninar, there are several policies that actually have the potential to be an option for tax diversification, but cannot be implemented during the current pandemic because the sector, for example, is still affected and needs government support.
“Diversification of tax revenues, such as carbon taxes and VAT increases, can actually be implemented as long as the time is right, so that these policies provide optimal results. Especially for the increase in VAT. Another thing that also needs to be considered is that the goods/services that will be burdened with the tax must be right on target, because not all goods/services in Indonesia can be subject to the same tariff to create justice and equality.” said Imanina.
Expand the Tax base
Both Imanina and Christine Tjen agree that the government needs to expand tax bases in order to increase revenue or achieve tax targets.
One of them is a carbon tax for companies and individuals whose business activities can pollute the environment.
“The carbon tax itself has actually been applied for a long time in several countries, even an explanation is provided in taxation theory. Basically the purpose of the carbon tax is good, because the goal is for the good of the environment, namely encouraging the reduction of carbon emissions. On the other hand, the carbon tax can boost state revenue.” Imanina said.
In addition to the carbon tax, Imanina also sees that for the sake of justice and equality in the field of taxation, while increasing the ratio of taxes and state revenues from the tax sector, the government needs to impose excise taxes on the soda and plastic industries, as well as other tax objects.
Consuming soda in the long term is also harmful to health. Meanwhile, the short-term and long-term use of plastic also harms the environment.
Furthermore, Imanina explained, currently the tobacco products industry (IHT) has been burdened by various taxes that must be borne.
The government cannot continue to suppress IHT by continuously increasing its excise rates. This is because the consequences of excessive and continuous excise tax increases carried out by the government not only have a negative impact on the sustainability of IHT, but also trigger the widespread circulation of illegal cigarettes, where it can actually become a boomerang for government revenue in the form of loss of potential state revenue.
Therefore, in order that IHT does not continue to be the mainstay of state revenue from excise, according to Imanina, the government needs to increase the tax base or other goods subject to excise. Some of them are plastic, soda or sugar tax.
Excisable goods that have been applied in several other countries can be adopted by Indonesia to be an alternative to government excise revenues in addition to excise on tobacco products or CHT.
“Commodities that can be included in the BKC include batteries, use of freon, carbonated food and beverages, sugar, motor vehicles, game cards, electrical equipment, explosives, perfume, jewelry, and other commodities that can be studied.” Imanina said.
She also explained that excisable goods (BKC) are goods that are restricted in circulation or consumption (use). This is due to health disruption and the impact of negative externalities such as environmental damage.
“Plastics, soda, and sweetened foods are some of the goods that can be subject to excise duty as an alternative to excisable goods. The extensification of excisable goods (BKC) is expected to be able to support excise revenues, as well as state revenues. We cannot continue to rely on tobacco excise (CHT) alone to accelerate state revenues,” Imanina said.
Source: https://www.pikiran-rakyat.com/ekonomi/pr-012375537/3-hal-penting-untuk-tingkatkan-penerimaan-pajak-untuk-pemulihan-ekonomi
(am)