To increase tax coverage, authorities also plan to cut corporate income tax for Indonesian companies. The tax rate, which is currently set at 25 percent of profit, will be cut to 20 percent, or even lower.

Currently, there are four categories regarding personal income tax in Indonesia, based on the level of income. Those with an annual income of less than IDR 50 million (approx. USD $3,700) are required to pay personal income tax of 5 percent. For those that have an annual income of over IDR 500 million (approx. USD $37,000), income tax rises to 30 percent.

Personal Income Tax Indonesia:

Category Income Tax Rate
1. < IDR 50 million per year             5%
2. IDR 50 million - 250 million per year            10%
3. IDR 250 million - 500 million per year            25%
4. > IDR 500 million per year            30%

Although lower personal and corporate income tax should result in a reduction of state income tax revenue in 2016, Brodjonegoro believes that the government does not need to adjust its income tax revenue target set in the 2016 State Budget as its tax amnesty program (which is to be introduced next year) is expected to close the gap. The Indonesian government targets a 11 percent (y/y) growth in income tax revenue to IDR 757.2 trillion in 2016.

Through the tax amnesty program, the government aims to stimulate the repatriation of tax evaders' funds. The government grants a tax discount to those Indonesians with undisclosed wealth stashed within the country or abroad (for example Singapore, a popular destination for wealthy Indonesians' funds) if they are willing to report these funds to the state. If they report their wealth before the end of 2015, a discounted tax rate of 3 percent will be applied. This figure climbs to 5 percent in case they report their wealth in the first half of 2016, and then to 8 percent if they report it in the second half of 2016. However, this program is controversial as analysts say it could degrade overall tax compliance in a country where compliance (and law enforcement) is already weak. It is estimated that Indonesia's tax-to-GDP ratio stood at 10.8 percent in 2014, among the lowest worldwide. Analysts say, the government should leave rates unchanged and instead increase the number of categories in order to make the tax system more fair.

Analysts also argue that Indonesia's tax targets are highly unrealistic. As an illustration, up to the first week of November, Indonesia's tax office has only managed to collect 59.8 percent of its full-year target.

Indonesian Government's Tax Targets:

  State Budget 2015
State Budget 2016
Total Tax Income          1,489.3          1,546.7    +4%
A. Domestic Tax Income
         1,440.0          1,506.6    +5%
 1. Income Tax            679.4            757.2   +11%
 2. Value-Added Tax            676.5            571.7   -15%
 3. Land & Buildings Tax             26.7             18.4   -31%
 4. Excise            145.7            146.4   +0.1%
 5. Other Taxes             11.7             11.8   +0.0%
B. International Trade Tax Income
            49.3             40.1   -19%
 I. Import Duties             0.37             0.37     0%
 II. Export Duties             12.1             0.03   -76%

in trillion rupiah

Further Reading:

• What is the Problem with Tax Collection in Indonesia?