Indonesia Raises Taxes To Control Budget Deficit

by Mary Swire, Tax-news.com, Hong Kong

26 April 2001

According to senior economics minister, Rizal Ramli, the Indonesian government is aiming to generate US$422 million in extra revenue by increasing taxes in a bid to tackle its budget deficit.

Ramli said the three trillion rupiah more in taxes is needed plus two trillion rupiah more from the Indonesian Bank Restructuring Agency (IBRA) to keep a lid on the deficit and prevent it from upping the gross domestic product which is currently at 3.7 per cent. 'I am confident IBRA will be able to meet the target,' Ramli said.

He confirmed that the government intends to concentrate on raising income tax particularly, he said, as there were many wealthy people who were avoiding paying the tax. He explained: 'We already have data that many rich people can build houses worth more than one billion rupiah and they don't pay tax.' Companies can breathe a sigh of relief though as Ramli said the government did not wish to increase the rate of VAT because it could damage company profits.

The government's decision to raise taxes was spurred on by an International Monetary Fund (IMF) announcement that it has delayed a loan payment to Indonesia until decisions have been made on how to tackle dire economic issues including the budget deficit, spiralling inflation and the ever-weakening rupiah. In a statement Anoop Singh, the IMF's representative for Indonesia, called for 'bold initiatives' to be undertaken because 'these developments are beginning to affect the macroeconomic framework, especially the fiscal outlook for 2001, and place Indonesia's recovery at risk.'

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