A government proposal to increase the non-taxable income threshold from Rp 15.8 million per year to Rp 24 million ($1,675 to $2,545) will cause the state to lose Rp 9 trillion in potential revenue, Bambang Brodjonegoro, head of fiscal policy at the Finance Ministry, has said.
That potential loss, however, could be erased as the increased purchasing power of 110 million people in the workforce could boost growth by 0.1 percent, he said on Friday.
Economic growth slowed to 6.3 percent in the first quarter from 6.5 percent in the fourth quarter last year. Indonesia’s economy expanded 6.5 percent last year.
Amid the global economic slowdown, Bambang said, the government needs to safeguard domestic consumption, which is the backbone of the economy.
The proposed increase in the non-taxable income threshold would require House of Representatives approval because it involves state money. Bambang said he hoped to discuss the proposal at an upcoming meeting with lawmakers.
Under the current system, the government does not tax the first Rp 15.8 million of a person’s income for that year. If the policy is changed, it will affect the taxation period that began in January.
Fuad Rachmany, the director general of the tax office at the Finance Ministry, said that by raising the non-taxable income threshold to Rp 24 million per year, anyone earning Rp 2 million or less per month would not be taxed.
This change could have a huge impact as many laborers make less than Rp 2 million a month. The minimum monthly wage for the Jakarta region is Rp 1.5 million a month, and is different from region to region, according to living costs.
But Fuad offered assurances that the change would not hurt tax revenue. “Our purpose is to improve the buying power of the poor,” he said.
The chairman of House Commission XI, which supervises finance and banking, supported the proposal.