Indonesia to Change Luxury Goods Tax, Mulls Raising PIT-Exempt Threshold

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According to Indonesia’s Finance Minister Bambang Brodjonegoro, several items will soon be exempt from the country’s luxury tax; these will include furniture, some electronic devices, and certain accessories.

Additionally, it is possible that the luxury tax on certain real estate holdings may also be changed. The government has previously stated that apartments with an area of over 150 square meters could be exempted from the current 20 percent tax if they are not considered “prime” properties.

The government hopes that the relaxation of the tax, despite lowering government revenues, will result in increased consumer spending and a strengthening economy. In the first quarter of 2015, Indonesia’s economy grew 4.7 percent, its slowest rate since 2009. The country did not fare any better in the second quarter, with GDP down 0.18 percent, exports and government spending declining, and the rupiah continuing to tumble.

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For 2015, the government has set a goal for economic growth of between 5.4 percent and 5.7 percent. In 2014, the country’s economy grew by 5.02 percent – the slowest rate in five years. So far this year, government spending has dropped 49 percent and exports have declined six percent.

Individual income tax-free allowance

Indonesia’s Finance Minister has also announced that the country is considering raising the individual income tax-free allowance by 50 percent. This would mean raising the income threshold from its current level of IDR24.3 million to IDR36 million (~US$2,698).

The tax change is another measure by the Indonesian government to increase consumer spending and jumpstart the economy. However, critics have highlighted the possibility that the tax change may result in lowered revenues for the government.

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Lowered revenues would be a particular problem for the country since it has issued higher targets for government revenue for 2015 onwards. The official revenue target for 2015 is IDR1,489 trillion – an increase of 30 percent over the previous year. Many analysts believe the 2015 target is much too optimistic.

The final details of the tax change are still pending, but, according to the current draft, the new threshold will only apply to unmarried taxpayers. The government has not yet clarified if the changes will also apply to married couples.


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