Indonesia will gradually cut its corporate tax rate to discourage companies from booking profits in lower-tax countries such as Singapore, President Joko Widodo’s top aide said.
The government will cut the rate from 25 percent currently to “maybe 17.8 or 17.5 percent,” Luhut Panjaitan, the president’s chief of staff, said in an interview in Jakarta on May 8. The move adds to plans for a tax amnesty for citizens as the government tries to lift revenue collection, Bloomberg reported.
“We’re going to do it, it’s already being ordered by the president,” Luhut, 67, said at his office in the state palace. “It’s not going to be too much gap from Singapore,” said Luhut, a former ambassador to the neighboring city-state.
Widodo, known as Jokowi, is focusing on shoring up state coffers as he seeks funds to improve the nation’s infrastructure and reach growth of 7 percent. A decline in government spending contributed to a further slowdown in Southeast Asia’s biggest economy last quarter, and Indonesia’s tax collection is falling short of target so far this year.
Economic growth, which cooled to a more than five-year low of 4.7 percent from a year earlier in the three months through March, could recover to 5.3 percent this quarter after the government started to spend its budget in April, Luhut said. The effects of increased state spending will be seen in June or July, he said.
The tax cuts will narrow the gap with Singapore’s rate of 17 percent to stop “transfer pricing,” Luhut said. The term typically refers to the practice of companies transferring goods to a parent overseas before selling internationally and then paying a different tax rate on profits abroad.
