World Bank Recommends Lowering The Threshold For PKP Turnover

notarisdanppat.com – World Bank recommends lowering the threshold for PKP turnover , The World Bank has recommended Indonesia to lower the threshold for taxable entrepreneurs’ turnover. This was conveyed by World Bank Senior Economist Wael Mansour regarding the June 2024 edition of the Indonesian Economic Prospects Report to the media crew in Jakarta, Monday (24/06). The purpose of this recommendation is to increase state tax revenue.

But on the other hand, quoting Kontan, Prianto Budi Saptono, Executive Director of Pratama-Kreston Tax Research Institute (TRI) believes that this policy should be postponed. According to him, the current economic conditions are still unstable due to geopolitical issues and the transition of the new government, so the policy is not appropriate to be implemented this year. In addition, the rupiah exchange rate, which tends to weaken against the US dollar, can also affect small entrepreneurs.

Threshold Options and Their Impact

Prianto explained that the government has two options regarding the PKP threshold, each with its positive and negative sides. The first option is to lower the PKP threshold. By lowering the threshold, the number of Taxable Person for VAT Purposes will increase and the tax office will have to handle more Value-Added Tax Return (VAT Return) filings each month. This will increase administrative costs and compliance burdens for small entrepreneurs who are newly confirmed as taxable persons. However, the positive impact is the potential increase in VAT revenue due to additional PKP.

The second option is not to lower the PKP threshold. If the threshold is not lowered, the administrative costs of the tax office will not increase as there are no new VATable Persons from small businesses. In addition, compliance costs for small businesses will also not increase. However, the negative impact is that the potential increase in VAT revenue from small entrepreneurs who become PKP does not arise. Therefore, the government needs to find other ways to increase VAT revenue.

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World Bank Assessment

The World Bank believes that Indonesia’s VAT threshold should be lowered as the high VAT threshold narrows the VAT tax base. In addition, there are many sectors in Indonesia that are exempt from tax compared to peer countries, such as mining and drilling products. This reduces tax revenue. The World Bank notes that the threshold for taxpayers to register for VAT in Indonesia is currently US$320,000 or around Rp5.2 billion. This threshold is six times higher than the average threshold in Organisation for Economic Co-operation and Development (OECD) countries, which is around US$57,000 or Rp935.1 million in 2022.

Plan for the Establishment of the State Revenue Agency (BPN)

President-elect Prabowo Subianto had previously announced his plan to establish a State Revenue Agency (BPN) that would unite tax, customs, and non-tax state revenues into one institution. This plan was also commented on by the World Bank, which considered that the establishment of this agency would take a long time. Reporting from CNBC Indonesia, Habib Rab, World Bank Lead Economist for Indonesia and Timor-Leste, stated that this plan will depend on each institution involved, although he has not further reviewed this plan.

Habib Rab believes that there are certain problems that need to be resolved in tax collection. These issues could be resolved through the existing Directorate General of Taxes or through a new administration. Mr Rab also believes that the new government will keep the level of the state budget deficit below 3% of gross domestic product (GDP). This plan is expected to have a positive impact on human resources and is in line with current fiscal rules. President Joko Widodo’s government has included the BPN formation programme proposed by Prabowo Subianto during the 2024 presidential election campaign in the Initial Draft of the Government Work Plan (RKP) for 2025. The agency was established to increase the ratio of tax revenue to 10-12% of GDP by 2025.

Conclusion

The reduction in the threshold of turnover of taxable entrepreneurs (PKP) recommended by the World Bank aims to increase Indonesia’s tax revenue. However, the implementation of this policy needs to be carefully considered, especially given the still unstable economic conditions. While the option to postpone the reduction of the PKP threshold can maintain administrative stability and reduce the burden on small entrepreneurs, the potential increase in tax revenue also needs to be taken into account. In addition, the plan to establish a State Revenue Agency (BPN) by President-elect Prabowo Subianto shows the government’s commitment in improving the efficiency of tax management and state revenue. The success of this policy will largely depend on proper implementation and cooperation between various related parties. Thus, it is expected that the measures taken can strengthen the tax base and support Indonesia’s more sustainable economic growth.

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