Actually, in November 2015 Finance Minister Brodjonegoro had already expressed the government's intention to cut both personal and corporate taxes in Indonesia but today the statement made headlines again after a meeting between Brodjonegoro and the parliamentary commission that oversees taxes. A 20 percent corporate income tax rate would be more in line with tax rates in other ASEAN economies. Moreover, in the future Indonesia may want to cut the corporate income tax below the 20 percent mark. This would discourage local companies to seek profits in lower tax markets (for example Singapore).

In November 2015, Brodjonegoro also uttered plans to cut the personal income tax. However, there has not been any new information regarding this plan. The government did announce, however, a plan to raise people's non-taxable income by 50 percent from IDR 36 million (approx. USD $2,727) to IDR 54 million (approx. USD $4,090). This move would strengthen people's purchasing power and encourage household consumption, according to the government.

Read more: Indonesia's Higher Non-Taxable Income to Influence Consumption?

Changing its tax regime is part of government efforts to raise tax compliance and increase tax revenue. The country is characterized by weak tax compliance and weak law enforcement. The last time Indonesia managed to achieve its annual tax revenue target (set in the annual state budget) was in 2008. In all following years tax revenue realization was (significantly) below the target. This not only implies a deterioration of Indonesia's "fiscal credentials" but also causes problems regarding to state spending. Last week it was announced that the Indonesian government has to cut government spending by IDR 50.6 trillion (approx. USD $3.8 billion) this year due to weaker-than-expected revenue (particularly caused by weak tax collection).

Indonesia's Tax Collection Target and Realization 2008-2016

   2008  2009  2010  2011  2012  2013  2014  2015  2016
(in IDR trillion)
 534.5  597.5  661.4  878.7  885.0  995.2 1,072.4 1,294.3 1,360.1
(in IDR trillion)
 607.4  563.2  650.0  872.6  835.3  916.3  984.9 1,055.6

Sources: Direktorat Jenderal Pajak & Nota Keuangan

It also remains unknown whether the Tax Amnesty Bill will see its birth this year. The government has high hopes for this bill, claiming it can raise USD $4 billion in additional tax revenue. The bill will make it easier for tax evaders to repatriate their wealth into Indonesia. The government will grant tax discounts to those Indonesians with undisclosed wealth stashed within the country or abroad (for example Singapore, a popular destination for wealthy Indonesians' funds). However, deliberation on the bill was postponed by Indonesia's House of Representatives until April 2016.

This bill may also come in handy when urging Indonesian individuals and companies mentioned in the Panama Papers to repatriate their funds to Indonesia.

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%