Indonesia's president-elect considers overhaul of tax system: Adviser

JAKARTA - Indonesia's president-elect, Joko Widodo, and his transition team are considering setting up an autonomous tax office in a drive to boost state income in Southeast Asia's largest economy, a senior adviser to Widodo told Reuters.

The plan would separate the taxation and customs department from the Finance Ministry and place it under the control of the president's office, similar to the US Internal Revenue Service, said Luhut Panjaitan, a key adviser to Widodo's transition team and contender to be chief economics minister.

Since mid-2012, tax revenue in the G20 economy has been weak, mostly due to declining export performance. With economic growth at its slowest since 2009, the government projects tax revenue this year to miss its target of 1,246 trillion rupiah (S$132 billion).

Government spending is capped for several sectors, including more than $20 billion for a fuel subsidy that economists argue benefited the rich more than the poor, leaving Widodo with limited fiscal space to change things. "How can you do something if you don't have much money in your pocket?" asked Panjaitan.

Widodo has said he wants to phase out the subsidy and reallocate the funds to better spending. His first move will be to ask outgoing President Susilo Bambang Yudhoyono to raise the price of fuel before he takes office on Oct. 20.

By establishing the new tax office and improving efficiency, the new government hopes to collect an extra 400 trillion rupiah (S$42.6 billion) for government coffers, Panjaitan said.

Over his five-year term, Widodo's administration wants to double the tax revenue from current levels, by encouraging more people to pay up. Just 25 million Indonesians are registered as taxpayers, from among a population of more than 240 million.

To fight tax avoidance, Panjaitan said, tax rates will be cut to make Indonesia's rate level with that of neighbouring Singapore.

But in a country where bureaucracy often holds back policy changes for years, the new tax office plan may not be easy to execute.

Changes to tax administration require a revision in tax laws, state income laws and money laundering laws, said Wahju Tumakaka, a spokesman for the existing tax office. "The issue is not whether or not to separate the tax office, but what kind of tax administration you want to have," Tumakaka said.

"If we're going to mould a new office, ideally we need three years to shape the structure and configure the information technology system."