income tax composition of indonesia, south africa, and brazil
TRANSCRIPT
Cross-Country Research on Tax Policy and Inequality:Comparative Study of Indonesia, South Africa and Brazil
INTERNATIONAL NGO FORUM ON INDONESIAN DEVELOPMENT (INFID) 2015
20002002
20042006
20082010
20120
2
4
6
8
IndonesiaEast Asia & Pacific (all income levels)
Brazil: 2013’s 7th Largest Economy (By GDP)
1961
1965
1969
1973
1977
1981
1985
1989
1993
1997
2001
2005
2009
02000400060008000
10000
South AfricaSub-Saharan Africa (all income levels)
GDP Per Capita, ZA vs Sub Saharan AfricaGDP Growth, Indonesia vs East Asia and Pacific
Indonesia, South Africa, and Brazil are prominent developing countries in the world.
• Indonesia: has higher and more stable growth compared with Asia-pacific average. • Afrika Selatan: GDP per capita far outperformed Sub-Saharan Africa average.• Brazil: 7th biggest economy in the world (2013)
Source: data.worldbank.org
2001 2002 2003 2004 2005 2006 2007 2008 20090
10
20
30
40
50
60
70
Brazil
2000 2005 2007 2008 2009 2010 20110
10
20
30
40
50
60
70
South Africa
2002 2005 2007 2008 2009 2010 2011 2012 20130
10
20
30
40
50
60
70
Indonesia
2000 2005 2007 2008 2009 2010 20110
10
20
30
40
50
60
70
OECD
However, these countries have worrying inequality problems …
Measured with “Gini Ratio”. Indonesia: Gini Ratio slowly increasing from around 30% to around 40%
Taxation plays vital role to fight inequality:1. As main source of government budget, to fund various social spending2. As main income redistribution tool.
Health and education are important spending to fight economic inequality.
For 2000-2010, education spending (%of GDP) of Indonesia did not make any progress.
Tax Ratio Indonesia, South Africa, Brazil, and OECD countries
Tax revenue performance of these countries are still not satisfying compared to developed countries (OECD Members).Do the riches pay proper tax?
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110
5
10
15
20
25
30
35
40
Indonesia South Africa Brazil OECD members
Tax Revenue to GDP Ratio (1972-2012)Source: Prastowo, 2014
1972 74 76 78 80 82 84 86 88 90 92 94 96 982000 02 04 06 08 10 12
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
7.32890099801574
6.70413172044689
5.25265617177505
9.73566151015337
10.7593058730753
8.34040884462898
13.2955432244052
11
12.3
Rasi
o Pe
nerim
aan
Paja
k te
rhad
ap P
DB
(%)
The increase of tax Ratio 2004 ke 2013 has been only 0.2%
OECD Countries revenue composition, 2010
Income tax is the most progressive kind of tax because it considers taxpayers’ ability to pay.
In contrast, the consumption tax is regressive because it does not consider taxpayers’ ability to pay.
Most of developed countries rely on revenue from income tax.
The composition of tax revenue Indonesia, South Africa, and Brazil in 2010
Brazil relies heavily on consumption taxes, it constitutes of more
than 53%.
Income tax revenue is dominant in South
Africa and Indonesia
Income tax composition of Indonesia, South Africa, and Brazil
Indonesia South Africa BrazilIndividual 24% 62% 14%
PAYE 23% 60% 8% Self employed 1% 2% 6%
Corporate 33% 36% 46%Others 43% 2% 41%
Total 100% 100% 100%
Although the income tax revenue is more dominant than consumption tax, the revenue of income tax mostly obtained from employees through PAYE system.
It shows us that tax paid by the middle class (employees), not by self-employed individuals.
Marginal tax rate in Indonesia, South Africa, Brazil, and United Kingdom, 2014.
Personal income tax system in Indonesia and South Africa do not show progressivity. It is proved by relatively low marginal rate and relatively high income level that subject to the highest rate.
0 2 4 6 8 10 12 140%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
South Africa Indonesia Brazil United Kingdom
Annual Income divided by GDP Per capita
Tax
Rate
Gender Inequality• Indonesia treat family as single taxation unit. As a result, married woman that have
their own tax ID potentially pay more tax due to the progression of income tax rates.
• In Indonesia, a wife with income from one employer is not combined but income from self-employed activities need to be combined with the husband's income.
• VAT in South Africa even burdens men more heavily than women by a margin of about 8%. Each ZAR 1 spent, families with male head 9:23 cent pay VAT while families with female head paying 8:13 cents.
• One of the contributing factors is the consumption behavior. Indirect taxes are higher on alcohol and tobacco as well as taxes on fuel burdening more to male family.
• Indonesia does not provide an exception of non-taxable goods in the gender perspective.
Tarif Corporate Income Tax 2006-2014 (%)
2006 2007 2008 2009 2010 2011 2012 2013 2014222426283032343638
Indonesia Afrika Selatan BrazilOECD Average Global Average
High corporate income tax rates could potentially lead to capital flight to countries with low tax
On the other side, developing countries may give too many tax incentives which is not effective.
Rank CountryFinancial Asset
in Tax Haven(billion USD)
1 China 1.1892 Rusia 7983 Korea 7794 Brazil 5295 Kuwait 4966 Meksiko 4177 Venezuela 4068 Argentina 3999 Indonesia 331
10 Arab Saudi 308
Rank Negara Total1 China 1.252 2 Russian Federation 974 3 Mexico 514 4 India 440 5 Malaysia 395 6 Brazil 217 7 Indonesia 188 8 Thailand 172 9 Nigeria 157 10 South Africa 122
Financial Asset Stored in Tax Haven Top ten of illicit financial flows 2003-2013 (billion USD)
Tax Revenue Loss Estimates Some Developing Countries (G20) Originating from Bilateral Trade mispricing by the European Union and the United States
(millions GBP)
Indonesia, South Africa, and Brazil are always included in top list of countries suffered the greatest losses due to tax evasion.
Tax base deduction by shifting of profit to other countries is well known as Base Erosion Profit Shifting (BEPS).
Finding from UNCTAD• Since 2008, for every $1 dollar
developing countries gain (through FDI, remittances, aid etc), they lose around $2 dollars (especially in illicit financial flows and debt repayments).• Extrapolating to all (non-
haven) developing countries generates a range of revenue loss estimates from $70 billion to $120 billion. Figure 20 shows the central estimate of $100 billion in revenue losses: towards half of the actual tax paid.
Tax Evasion in Indonesia• Transfer pricing mostly do by
companies particularly coal,palm oil, cocoa and other commodities sector (Reuters, 24th February 2015)• Tax haven by rich person and
also company that register their company in countries with low rate of tax
Tax Ratio Tax Ratio Tax Ratio Tax Ratio Tax Ratio2007 2008 2009 2010 2011
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
1. PERTANIAN, PETERNAKAN, KEHUTANAN, DAN PERIKANAN 2. PERTAMBANGAN DAN PENGGALIAN 3. INDUSTRI PENGOLAHAN 4. LISTRIK, GAS, DAN AIR BERSIH 5. KONSTRUKSI 6. PERDAGANGAN, HOTEL DAN RESTORAN 7. PENGANGKUTAN DAN KO-MUNIKASI 8. KEUANGAN, REAL ESTAT & JASA PERSH. 9. JASA - JASA
Efforts Done by GOI• Entering tax treaties with other countries 65 countries• Providing tax provisions regarding transfer pricing policies, anti-
shopping rules, thin capitalization and controlled foreign corporations• Increasing and intensifiying tax audits on certain taxpayers with cross-
border transactions• Issued regulation on tax audit procedures related to exchange of
information based on a tax treaty• Tax Amnesty
OECD BEPS Action Plan• To combat BEPS, OECD released BEPS Action Plan in July 2013 to address the perceived
flaws in the international tax rules. • The Action Plan, negotiated and Drafted with the active participation of its member states,
contains 15 separate action points.• The Plan is squarely focused on addressing issues in a coordinated, comprehensive
manner, and was endorsed by the G20.
Digital economyDigital economy makes developing countries facing more and more difficult way to levy tax. Besides the difficulty of administration, in the context of cross-border trade, there is also the issue of how the taxing right be defined
Transfer PricingTransfer pricing is often associated with the company's actions in the set price so that the transfer tax payable in a country can be transferred to other countries. Among the countries of the G-20, Brazil, Indonesia, and South Africa are ranked 4,5, and 6 respectively in term of the amount of tax revenue lost due to transfer pricing.
Transparency of Information.A key aspect of multilateral cooperation is exchange of information.
In 2014, OECD created of one common global standard for the automatic exchange of financial account information, which has been made available for all jurisdictions to use.
Issues raised in BEPS Action Plan that are strongly correlated with developing countries are:
Beyond BEPS Action PlanMore involvement of developing countries in the formulation of a global initiative• Involvement of developing countries is
limited only on the implementation of the Action Plan rather than on all phase including the formulation.
• For some measures, in the Action Plan the OECD is unlikely to propose solutions that would be strong enough or appropriate for developing countries.
• Regarding information transparancy, the lack of involvement of developing countries in policy formulation also occurs in the preparation of the Common Reporting System. Developing countries were not involved or consulted in the design stage.
Introduction of Global Formulary Apportionment The concept of international taxation currently very detrimental to a developing country with a vast market as the three countries that observed for income generated in their countries through trading activities but more income enjoyed by the country in which a company operates sellers.
In the context of the division of taxation right, the method needs to be considered is assessment of multinational corporations on a unitary basis using Global formulary apportionment (GFA).
GFA requires coordination for the state to support a country-by-country reporting so that the calculation of the proportion of profit can be calculated correctly.
Conclusion1. Indonesia and South Africa have relatively low revenue performance
2. Individual tax revenue in Indonesia are significantly raised by tax revenue of employees, compared to very little contribution from self-employed individual. In terms of individual income taxation, this rate is relatively low compared to developed countries
3. The taxation policy has not been reflected gender justice.
4. One cause of the low level of tax revenue is massive amount of tax evasion and tax avoidance. This is done by using artificial international taxation scheme, equipped with the use of tax havens jurisdiction.
5. One way to combat international tax evasion practices do is to implement OECD BEPS Action Plan, but BEPS Action Plan is not enough for developing countries.
Recommendations1. Indonesia need to maximize tax revenue potential so it can be used to increase public spending that
needed for inequality reduction by increasing tax compliance of self-employed rather than rely on PAYE system, and reviewing their idividual income tax rates to be more progressive
2. Indonesia needs to change the family unit tax into individual tax, so women are not harmed by higher marginal tax rates.
3. Beyond BEPS Action Plans, developing countries need to take steps, including more involvement in discussion and formulation of BEPS Action Plans, improving regional cooperation, reviewing the application of tax treaty and tax treaty abuse, proposing application of unitary taxation regime, proposing formulary apportionment with country-by-country reporting as an alternative of the arm's length principle, and pressing developed countries to provide assistant in the implementation of information exchange as well as enhancing transparency of beneficial owners in international tax scheme so the artificial profit shifting can be reduced.
4. Bringing beneficial ownership issue into political discourse to get more attention and real cooperation between developed countries and developing countries by standardize the automatic exchange of information and re-characterization of tax planning structures that do not have economic substance
5. Discourse tax into public issue and become political issue
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