Indonesia Targets Lower Deficit

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

08 February 2012

It can be expected that power prices will increase in Indonesia by around 10% in April this year, following a proposal for a reduction in subsidies by the government to contain its fiscal deficit.

A surge in subsidies in 2011 has been put down to the rapid increase in the cost of importing oil to fuel the country’s power stations. Widjajono Partowidagdo, Indonesia’s Deputy Energy Minister, emphasized that the consequent 61% rise in energy subsidies to IDR65.8 trillion (USD7.29bn) in 2011, from the IDR40.7 trillion budgeted for last year, in order to keep electricity prices stable, was unsustainable.

As the government has established a subsidy target of IDR45 trillion for this year, while it has been estimated that actual subsidies could reach almost IDR54 trillion, a 10% increase in electricity prices from April 2012 is seen to be necessary so that the official budget could remain credible.

The inflationary impact of a 10% electricity price increase could, obviously, put additional pressure on household budgets, particularly for the lower-paid, whose energy costs form a greater proportion of their spending.

However, the government has indicated that it has devised options to protect those on lower incomes, if its energy policy is approved by parliament. It has suggested that current electricity tariffs could be maintained for low-usage customers, with the 10% increase kicking in after usage reaches a certain level, or is over an agreed limit.

The Indonesian government has embarked on a campaign to boost tax collection in order to relieve pressure on the budget. Last month, Indonesia’s Directorate General of Taxation (DGT) within the Ministry of Finance issued preliminary figures confirming its success in tax collection in 2011, and illustrating its policies to increase tax revenues further this year.

It was disclosed that the country’s tax revenues in 2011 reached IDR872.6 trillion, or 99.3% of the IDR878.7 trillion target and an increase of IDR149.3 trillion, or 20.6%, over the outcome in 2010. This led to Indonesia’s ratio of tax revenue to gross domestic product to rise to 12.3% in 2011, an increase of 1% when compared with the previous year.

Last year, Indonesia’s Finance Minister, Agus Martowardojo, launched the national tax census, which is being administered by the DGT, with the aim of increasing the number of Indonesian taxpayers and, thereby, increasing tax revenues. It has been said that the country’s tax base presently consists of only 7.7% of its potential individual taxpayers, equivalent to 8.5m people out of a possible 110m employees, and only 3.8% of its potential corporate taxpayers, or some 460,000 businesses out of 12m registered firms.

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