Indonesia plans 'to cut corporate tax rate next year'

Mr Luhut Panjaitan
Mr Luhut PanjaitanST FILE PHOTO

Citing Cabinet minister, national media says rate could be slashed from 25% to 18%

JAKARTA • Indonesia plans to cut the corporate income tax rate to 18 per cent from 25 per cent next year, a Cabinet minister was quoted as saying by Indonesian media yesterday.

Coordinating Minister for Political, Legal and Security Affairs Luhut Panjaitan had in May said Indonesia will gradually cut its corporate tax rate to discourage companies from booking profits in lower-tax countries such as Singapore.

"We hope to finalise the plan soon for it to be effective next year," he told reporters over last weekend, the Kontan newspaper quoted him as saying.

Last month, Finance Minister Bambang Brodjonegoro said the government will propose a revision of the income tax law to the Parliament next year which will include a plan to lower corporate income tax. But he said the lower rate will not be effective until 2017.

Indonesia, South-east Asia's largest economy, grew an annual 4.67 per cent in the second quarter, the slowest in six years. Its currency is trading at 17-year lows. A decline in government spending had contributed to a further slowdown in Indonesia in the last quarter, and its tax collection had fallen short of targets.

ON THE WAY

We hope to finalise the plan soon for it to be effective next year.

MR LUHUT PANJAITAN, Coordinating Minister for Political, Legal and Security Affairs, who said in May that Indonesia will gradually cut its corporate tax rate to discourage firms from booking profits in lower-tax countries such as Singapore

Mr Brodjonegoro had expressed hope that growth target will be met for the year as the government has only met 60 per cent of its spending target for 2015.

The government also had plans for tax amnesty for citizens to lift revenue, and cutting corporate tax was part of the plan. "It's not going to be too much gap from Singapore," Mr Luhut, 67, had said about the tax cut back in May.

Analysts had said the planned tax cuts may prompt some retention of profits onshore, yet it remained to be seen whether that would offset the lower levy.

President Joko Widodo is expected to announce soon the second instalment of a stimulus package aimed at attracting investors, addressing growth slowdown and supporting the shaky rupiah.

The rupiah traded at 14,700 to the US dollar yesterday, a 17-year low. It was trading 10,282.02 against the Singapore dollar at 5pm. It is the second worst-performing currency in emerging Asia after Malaysia's ringgit, having lost 18 per cent against the greenback so far this year.

Indonesian central bank deputy governor Hendar said the bank is concerned about the current level of rupiah, and would continue to intervene in a measured fashion in the foreign exchange market to support the currency.

Finance Ministry official Suahasil Nazara told a parliamentary hearing yesterday that he believes that based on economic fundamentals, the rupiah should trade at 13,900 to the US dollar next year.

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on September 29, 2015, with the headline 'Indonesia plans 'to cut corporate tax rate next year''. Print Edition | Subscribe