Tax cuts introduced to help firms to prevent layoffs

Aditya Suharmoko, The Jakarta Post, Jakarta | Mon, 02/16/2009 2:43 PM  

As businesses are crippled by the global economic crisis, forcing companies to lay off workers, the tax office has come up with a new regulation to cut taxes imposed on businesses hard-hit by the downturn. 

Issued last week, the regulation allows eligible companies a reduction of up to 25 percent in their income tax during the January-June period. 

The cut is derived from the amount of taxes businesses will pay under Article 25 of the Income Tax Law. 

The amount businesses must pay for the January-June period is calculated using as a benchmark the amount of income tax they paid the previous December, tax office chief Darmin Nasution said in the regulation. 

However, for businesses that have submitted their 2009 tax reports, the amount of Article 25 tax they must pay will be based on the tax report. 

Article 25 tax is an annual tax paid by businesses in monthly installments, to reduce the burden to businesses of having to pay large amounts of tax by the year's end. 

If businesses end up paying more tax than they are supposed to, they will get a refund at the end of the year. 

The tax office added certain businesses would not be eligible for the Article 25 tax cut. 

These include banks, state- and regional-owned firms, publicly listed companies, and other companies that are legally required to file regular financial reports publicly. 

The new regulation is valid for six months, but can be extended until the end of the year. 

Should businesses believe they will not be able to meet their tax obligations for the July-December period, they can submit a written proposal, in June at the latest, showing their tax obligations will drop by a maximum 25 percent from their previous estimates. 

Businesses also need to submit their latest revenue figures a month before they submit the written proposals, and their estimated revenue figures until the next December. 

The tax office will then study the proposals and come up with a decision within 15 days. 

The newly introduced tax relief is one of several tax incentives planned by the government to help businesses at least maintain current production capacity, amid rapidly weakening worldwide demand. 

By reducing the burden on the private sector, the government expects to minimize layoffs and keep the economy growing at a respectable level of between 4.5 and 5.5 percent. 

Last year, the economy was predicted to have expanded by 6.2 percent. 

However, critics say the government's commitment to preventing layoffs, which would boost unemployment and poverty rates, has more to do with trying to maintain or even increase its popularity ahead of the upcoming general elections this April. 

The National Development Planning Agency (Bappenas) estimates the number of people living under the poverty line may rise to 33.71 million, or 14.87 percent of the total population, by the time official figures on unemployment and poverty are revealed in March by the Central Statistics Agency (BPS). 

The figure is based on the assumption that inflation hovers at around 9 percent. 

For the full year, however, Bappenas forecasts poverty to reach 13.28 percent, or 29.99 million people, as inflation declines to 6 percent and economic growth to 4.5 percent.