Twist and Turns of Tax Rate War: Is It Really Beneficial for Indonesia's Economic Stabilization?

Tax Rate War (TRW) refers to the phenomena where countries lower their tax rates in order to attract investments into the country, in some cases this can also be referred as a tax reformation. Consequently, the investments mentioned will be able to step up the country's economic growth rate. In truth, TRW touches upon two functions of tax which are the function to be used as a budget and the function to stabilize the country's economy. However, the main focus of this article lies on the function to stabilize where it is hoped that TRW can stabilize the country's economic through the entry of investments. Though this phenomenon poses a positive outlook on Indonesia's economy, yet globally, this could also pose a threat to countries with high tax rates. This is reaffirmed by Indonesia's Minister of Finance (MoF), Sri Mulyani, in which she stated that other country's MoF are asked to refrain from raising to the bottom in terms of tax level, this anticipation is done to avoid a tax war between countries.

It seems as though Indonesia is not very prominent on joining the TRW, as stated by Firmanzah, an economic observer, Indonesia should not need to worry on attracting investors through lowering their tax rates considering that Indonesia already has a large and variable market that is enough to fascinate investors; Firmanzah stated that Indonesia should instead, concern itself with the simplification of investment and the clarification of procedures that are still ambiguous, especially in regions. This is also supported by the statement of Chairman of the Indonesian Retailers Association (IRA), Roy Mandey, in which he stated that through the perspective of entrepreneurs, reducing the tax rates would not put Indonesia at an advantageous position therefore Indonesia should focus on growing investment opportunities.

The Author herself agrees with the opinion that Indonesia should not haste in joining the TRW. Indonesia as a developing country and as a country with vast resources, has a large market in which it poses as the center of attraction for investors; sectors such as oil and gas, food and beverages, cosmetics, even apparel has the potential to be a hot market for investors. Despite that, it seems as though the government of Indonesia has joined the war in tax rates in which Indonesia has decided to implement an exemption from corporate income tax for pioneer industries and an incentive of income tax investments in certain regions or sectors.

Not intending to stray from the Author's original opinion, but the Author is also on the stance that although it may seem as though Indonesian does not need to join TRW but sooner or later, Indonesia will have to join. This is also taking into consideration that true to its name, war entails that Indonesia is not the only party and considering this is a global war then Indonesia should be aware of the differences of tax rate not only globally but also in terms of ASEAN. This is also felt by Indonesia in which it has decided to take the baby steps of reducing the corporate income tax from 22% in the year 2020 and 2021 to 20% in the recent years. The slow decrease of tax rate may be the solution to one of Indonesia's entrepreneurs' biggest concerns which is corporate taxpayer compliance. It is said that may taxpayers have avoided tax obligations in consequence of the high rate which in turn also resulted in investors being reluctant to enter Indonesia. One of the solutions proposed was to significantly lower the tax rate to one that is similar to neighboring countries such as Malaysia but while also paying attention to the economic and political gains and concerns of Indonesia.

Therefore, as a conclusion, the Author very much advises to not hastily join the TWR considering Indonesia has a few strong capabilities outside of its tax rates that may attract investors such as its large market. However, considering that many countries are joining the war, it would not hurt for Indonesia to take baby steps in adeptly changing their regulation so as to keep up with the demands of tax rates from investors and the global community. All in all, TRW is a steppingstone to stabilize the country's economy, but it should do so while also considering the factors going on within Indonesia.