Facing a taxing time in Indonesia

Jun 25, 2021

There are no EFTPOS machines on the benches of Indonesia’s traditional markets. All deals are cash, rupiah notes grubby from the soiled roots of shallots pulled hours earlier.

Some markets are undercover with separate counters. Others are makeshift, sellers staking space on pavements, latecomers spilling onto streets. Crowds are so dense social distancing is impossible. Masks are optional and used by around fifty per cent.

Despite the virus risks, the daily pre-dawn pasars are hugely popular because shoppers want their meat hot and vegies field-fresh. Taste trumps hygiene. Traditional markets are for the thrifty, not the fastidious. Their habitat is air-conditioned superstores where shrink-wrapped produce from far away carries check-out codes.

That makes it easy for the bureaucracy to take tithes, impossible with the stallholder grannies who add, subtract and multiply faster than a calculator, calling out the figures so customers know all’s fair. Buyers needing a receipt should bring a pen and paper.

But such is the desperation to halt the nation’s slide toward deficits that legislators now want to slug the poor with a GST. Details of the proposed imposts are vague though figures of five to 12 per cent are tossed around.

When the global financial crisis crippled Indonesia late last century nine essential ingredients known as sembago were price controlled and free from excise. They included rice, sugar, cooking oil, chicken meat, eggs, milk, corn, kero (now replaced by LPG – elpiji) and salt.

Bean-counters claim the exemption denies the government around Rp 30 trillion (AUD 2.7 billion) a year in lost revenue, though adding charges to the basics will ramp the COL.

Inflation is the nation’s nightmare, the fear of triggering violent disorder. Any change which adds financial burdens could muster millions shouting they can’t afford to eat. In the past, manipulated mobs have blamed ethnic Chinese merchants for controlling supply chains. They get accused – usually without evidence – of warehousing commodities to create shortages.

An estimated 27 million (more than the population of Australia) live below the poverty line, defined by the Asian Development Bank as Rp 302,735 (AUD 30) per person per month.

When the Republic was proclaimed in 1945, becoming a reality four years later after the Dutch quit fighting the anti-colonialists, the new nation’s founders promised an equitable society. That worthy ambition has been trashed.

The differences are stark and worrying. Melbourne Uni Indonesian expert Professor Tim Lindsey has written that ‘the four richest billionaires in Indonesia have more wealth than the poorest 40 per cent … gross national income per capita is just AUD 5,115, lower than Samoa, Tonga, Fiji, and neighbours Malaysia and Thailand.’

The US-educated Finance Minister Dr Sri Mulyani Indrawati, 59, has served under two presidents. She quit her first term in 2010 to join the World Bank Group in Washington as a managing director after infuriating oligarchs by investigating alleged fraud. She was bought back to Jakarta in 2016 by present President Joko Widodo with the brief to mend the economy. It’s the biggest in Southeast Asia but lacks discipline.

Indrawati is widely regarded as smart, clean and competent, but she’s not a politician and works in a system where corruption is well embedded and altruism in short supply. The proposal to trim tycoons’ profits will earn her much enmity.

Her plan includes targeting those earning five billion rupiah (AUD 465,000) plus a year by lifting their liabilities from the current 30 per cent to 35. This is the cohort with the clout to avoid its legal obligations by hiring creative accountants, paying off amoral officials and threatening the rest.

Salaried staff in big companies with modern wage systems start with a five per cent trim. Workers in small local industries who get paid in notes avoid the impost. So do family restaurants and food stalls, though international chains like McDonald’s add ten per cent to every serve.

Economists regularly call for the scrapping of fuel subsidies that benefit owners of shiny new Mercedes alongside those kick-starting rusting Hondas. Premium grade petrol is about AUD 0.80 a litre mainly through pumps owned by the state-owned company Pertamina. Past attempts to drive prices closer to costs have been judged too risky.

The Organisation for Economic Co-operation and Development (OECD) reports Indonesia has the lowest tax ratio in the region, even below the average in Latin America and the Caribbean.

The need for reform is being prodded by the pandemic. Officially it has so far killed 54,000 from two million confirmed cases and severely wounded the economy. In one day this month 14,546 citizens tested positive. Indonesia’s population is 11 times larger than ours so that’s the equivalent of 1,322 new cases in Australia in 24-hours.

The budget deficit topped six per cent of GDP last year, double the limit allowed in the Constitution. Foreign debt is growing fast following five years of massive spending on necessary infrastructure projects and reported to be above AUD 558 billion. In an online media conference, Indrawati acknowledged Covid cases would impact growth, particularly in Java and in this year’s second quarter

The government has shied from lockdowns, arguing that millions survive from day-to-day with petty trading so restrictions on doing business would do more damage than the pandemic.  Instead confusing ‘micro-community activity restrictions’ have been announced and supposedly in place till 5 July. Implementation is fitful.

There are some welfare programmes. Basic healthcare is free and so are the mainly Chinese vaccines, though distribution is slow and patchy. Cash handouts and vocational training schemes are available for those who’ve lost jobs.

In a video from her department Indrawati claimed the proposed taxes would apply only to undefined ‘premium products’.  She said this would mean the burden would fall on the rich.  Not so.  They also use the traditional markets, sending maids into the chaos to do the shopping.

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