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Indonesia

Indonesian challenger Prabowo Subianto promises tax cut that will put the nation ‘on par with Singapore’

  • Indonesia has one of the region’s lowest tax-to-GDP ratios of about 11 per cent and a poor record of tax compliance
PUBLISHED : Thursday, 15 November, 2018, 11:40am
UPDATED : Thursday, 15 November, 2018, 7:59pm

Indonesian presidential candidate Prabowo Subianto will slash corporate and personal income taxes if he comes to power, part of a plan to compete with low-tax neighbours like Singapore in luring more investment to Southeast Asia’s biggest economy.

Tax reform is one of the key economic programmes that Prabowo, as the former general is known, will outline in his election campaign against President Joko Widodo ahead of the April vote, according to Dradjad Wibowo, a politician from the National Mandate Party who is helping to formulate policy for the Prabowo camp.

The plan, which may be rolled out over 10 years, is yet to be finalised, Wibowo said. While he didn’t disclose possible tax rates, he said the aim is to lower them “on par with Singapore”.

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Indonesia currently has a top personal income tax rate of 30 per cent and a corporate tax rate of 25 per cent. Singapore has a corporate tax rate of 17 per cent and a top individual rate of 22 per cent for residents.

“Our nominal tax rate is too high,” Wibowo said in an interview in Jakarta on Wednesday. Tax reform is needed to attract more foreign business as well as to encourage compliance, he said.

Our policy will be more pro-growth, more pro-business and also take equity and sustainability very seriously
Dradjad Wibowo

Neither side has released a detailed economic policy plan yet. At a briefing on Friday, Wibowo said a Probowo government would seek to raise the non-taxable income threshold and reduce income tax, beginning with rates that apply to individuals.

Both contenders faced each other in the 2014 election. While campaigning for next year’s vote is not yet fully underway, early polls show Widodo, known as Jokowi, with a significant lead. A survey by Saiful Mujani Research and Consulting published in October showed Jokowi with 60.2 per cent support versus 28.7 per cent for Prabowo.

Indonesia has one of the region’s lowest tax-to-GDP ratios of about 11 per cent and a poor record of tax compliance. The Jokowi government has been trying to improve both measures, including undertaking a successful tax amnesty that unearthed more than US$360 billion of undeclared assets held in Indonesia and abroad.

An emerging market rout and sluggish economic growth has made Jokowi’s job more complicated. The economy is growing at about 5 per cent, well short of the 7 per cent the president pledged when he came to power. Jokowi will set “more realistic” targets if he returns to office, a senior party official said this month.

Prabowo is targeting growth of 6 per cent to 6.5 per cent by the end of his first term. He’ll aim to boost manufacturing in the food, agriculture and fisheries sectors to help Indonesia “become the giant food bowl of Southeast Asia and, at the least, feed Indonesia’s rising population,” said Wibowo.

“Our policy will be more pro-growth, more pro-business and also take equity and sustainability very seriously,” he said. “The current climate is very bad for growth and business.”