Indonesian Tax Cuts Designed To Draw More Business

by Mary Swire, for LawAndTax-News.com, Hong Kong

04 September 2008

Indonesia’s parliament has this week passed a package of measures designed to cut corporate and personal income tax rates.

The Indonesian House of Representatives made the decision to enable the economy-boosting amendments on Tuesday.

Under the new legislation, corporate income tax will be set at a flat rate of 28% from 2009, replacing the country's current progressive system, with a further reduction taking the level to 25% the following year.

Observers have suggested that the law will mainly benefit the country's high earning companies, although Dradjad Wibowo, a member of the House was quoted by the Jakarta Post as stating that:

"We pledge the tax amendment will be very supportive and friendly to all levels of business, but at the same time very stiff on any violations."

The legislation also aims to encourage businesses to go public - for example, businesses listing at least 40% of their shares on the Indonesia Stock Exchange will see their tax rate cut by a further 5%.

Many analysts have hailed the legislation as a major milestone in Indonesia’s transition to a more business-friendly market, but have warned that further overall improvements are needed.

Recommended