Govt to take over workers tax liabilities to help firms

Aditya Suharmoko, THE JAKARTA POST, JAKARTA | Fri, 01/16/2009 12:29 PM  

As the global economic crisis deepens, the government plans to take over tax liabilities normally paid by companies, to help maintain jobs. 

Acting Coordinating Minister for the Economy Sri Mulyani Indrawati said Thursday there was a plan to waive workers’ income tax liabilities which were regularly provided by the corporate sector via benefit packages. 

By scrapping this cost, Mulyani expects the corporate sector would be encouraged to keep workers on despite hard times. 

“We want to prevent unemployment, and it will be better if you (businesses) can create jobs. All of our policies will be directed at that (preventing unemployment),” said Mulyani in a gathering with the Indonesian Chamber of Commerce and Industry (Kadin). 

“We will adjust article 21 on income tax so that the incentive to avoid layoffs will be bigger than doing it. We will see which sectors (can receive the incentive).” 

Under the Income Tax law, article 21 arranges tax allowance by companies related with salaries, wages, honorariums, allowances and other methods of payment to domestic individual taxpayers which are taxed in respect of jobs, positions, services and activities. 

Unlike in other countries, most companies in Indonesia subsidize the income tax liabilities of their workers, creating additional costs which would normally be costs to the workers. 

“If we eliminate the tax (under article 21), businesses will rethink laying off their workers,” Mulyani said. 

The Finance Ministry has pledged to provide tax incentives for businesses hit by the global crisis. The government has planned to give out Rp 27.5 trillion (US$2.46 billion) in a stimulus package to promote economic growth. 

The details of the pledged stimulus package remains uncertain because the government had yet to decide on priority sectors and allocation of funds to them, while the impact of the global recession is increasing. 

Analysts believed the stimulus package was just an election gimic ahead of the April polls for selecting lawmakers and those in July for president. 

This is because very few concrete actions were formulated until now, so the proposals seemed very vague. 

Mulyani said the government expected to reduce the jobless rate to 7.4 percent, but if the stimulus failed to work as anticipated then the figure might be above 9 percent. 

The government also aims to lower the poverty rate from 15.4 percent to 12 percent by the year’s end, she said. 

Therefore, she added, the government would focus on strengthening the financial sector and protecting food and energy businesses. 

Bambang Prijambodo, the macroeconomic planning director at the National Development Planning Agency, said in order to reduce unemployment and generate economic growth, the stimulus should be implemented focusing on economic activities with multiplier effects. 

Trade Minister Mari Elka Pa ngestu said the government would stabilize the price of staple foods to stimulate the economy and curb inflation. 

Indonesia’s economy is domestically driven, with almost 70 percent contributed by consumption, with the rest comprising exports and investment.