Indonesia could start taxing its highest earners more
- Indonesia's Finance Ministry is looking into raising taxes on high earners and carbon emissions.
- The country needs to increase tax revenue, especially after the costs of the pandemic.
- Around the world, different countries are reconsidering taxes in the wake of pandemic recessions.
Indonesia is looking into potentially raising taxes on higher-earners and enacting a tax on carbon emissions, Bloomberg reports.
The country's government needs to bring in more revenue and cut down on the deficit, and its finance ministry has proposed a few tax measures to potentially help balance the books.
One is creating a new tax bracket for high earners. Those making over 5 billion rupiah a year - around $349,000 - could see a 35% income tax. Per Bloomberg, current income tax rates generally top out around 30%, and go as low as 5%.
Also on the table is a tax on carbon emissions, which may apply to everything from fossil fuels to cars. As Reuters reports, Indonesia is a major greenhouse gas emitter. The country is also looking into reforms for value-added taxes (VAT), crafting a system that taxes different items at different rates, rather than the current uniform rate of 10%.
It's just the latest country reckoning with taxes and revenue in the wake of the coronavirus pandemic, which massively disrupted economies around the world. According to Nikkei Asia, Indonesia has failed to meet tax revenue targets for the past three years - and it had to ramp up spending in 2020 to address the pandemic.
One potential tax approach to recoup pandemic costs is a one-off wealth tax on high earners. Argentina recently brought in $2.4 billion with one, all of which is set to go to areas impacted by the pandemic, including housing, public health, and small businesses. The International Monetary Fund has said temporary taxes on the wealthy could help the global economy rebound from pandemic-induced recession.
Indonesia's tax proposal more closely mimic proposals by President Joe Biden to fund massive investments in infrastructure, which includes the care economy and education. He wants to offset those expenditures with tax increases on corporations and Americans earning over $400,000. Those measures do not constitute an outright wealth tax, but still target wealthier businesses and individuals.