Jokowi Plans Major Tax Overhaul In Quest For Cash

Indonesia – The tax man cometh. And next year in Indonesia, there will be more of them.

In his mission to raise revenue available for investing in roads, rail and ports in South-East Asia’s largest economy, new President Joko Widodo’s administration is planning to expand the ranks of tax collectors. Finance Minister Bambang Brodjonegoro, who took office on Monday, said the campaign will target companies and individuals.

Jokowi, as the president who took office last week is known, also will probably scale back fuel subsidies by year end as he moves to boost spending on investment and assistance for the poor next year, according to Brodjonegoro. The goal is to boost Indonesia’s slowing economic growth and address income inequality in the world’s fourth most-populous nation.

“Our concern now is how to make growth with quality,” said Brodjonegoro, 48. The president wants to reduce the income gap and has stressed the importance of an economic program “that has direct impact to the common people”, he said.

Improving the government’s budget is the first step toward achieving Jokowi’s promises to voters, as he inherits an economy expanding at its slowest since 2009 and a near-record current account deficit that is weighing on the rupiah. He plans to bolster sea-transport links and ports in the world’s largest archipelago, one of his priorities as he aims for a growth pace Indonesia has not seen since before the Asian financial crisis of the late 1990s.

Among the administration’s challenges will be weaning the country off fuel subsidies that cost more than $US20 billion ($22.8 billion) a year, consuming more than a 10th of government spending in the 2015 budget. It also strains the trade balance by boosting demand for energy imports. Dismantling the decades-old program is a political hot potato – protests accompanied past price increases and riots spurred by soaring living costs helped oust dictator Suharto in 1998.

Jokowi has also pledged to improve the bureaucracy and curb corruption, all while he lacks a majority in parliament. The opposition built around losing presidential candidate Prabowo Subianto holds the speaker positions in both houses of the legislature. Indonesia ranked 114th among 177 countries and territories in a 2013 Transparency International corruption perceptions report.

Boosting tax collection will be a challenge, said David Sumual, chief economist at PT Bank Central Asia in Jakarta.

“It’s quite hard, we have declining economic growth,” Sumual said. “It depends on the political will of the government. It depends on the resources at the ministry of finance. Sometimes the bureaucracy doesn’t want to do it.”

Before being made vice finance minister in former president Susilo Bambang Yudhoyono’s government, Brodjonegoro was head of fiscal policy at the ministry, overseeing revenue policy, fiscal risk and the budget.

He is a former dean of the economics faculty at the University of Indonesia, whose graduates have helped shape the country’s economic policy for decades.

Jokowi needs funds to ensure every Indonesian, especially the “poor or near poor,” has access to basic health and education services, Brodjonegoro said. The president plans to start a smart-card program for health and education next year, he said.

The government will improve profiling of taxpayers and will hire more account representatives and tax officers, the minister said. The comments back up a pledge this week by tax office chief Fuad Rahmany to go directly to chief executives and “request they pay and if necessary, we will threaten them”.

Jokowi has targeted a tax-to-gross domestic product ratio of 16 per cent within his first term.

“Now, we only have tax ratio of around 12 per cent,” Brodjonegoro said. “Basically our target next year is to increase that, but more importantly, to meet the target first. Because usually we have the target, but we never achieve the target.”

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