Why Not Tax The Rich?

By: Wahyu Dewaji, employee of the Directorate General of Taxes

In recent days, we know from Forbes Magazine website that Indonesian people have been ranked in the 100 Richest People in the World, one at rank 64 and another at rank 69. This has proved that Indonesia has rich people who could be potential subjects of tax.

The law Undang Undang Harmonisasi Peraturan Perpajakan tells us that, in some sections, progressive tax, which is described below,

1. Tariff of 5%, fine for taxpayers earning up to  Rp 60 million
2. Tariff 15% fine for taxpayers with incomes ranging from Rp 60 million to Rp 250 million
3. Tariff 25% fine for taxpayers with incomes ranging from Rp 250 million to Rp 500 million.
4. Tariff 30% fine for taxpayers with incomes ranging from Rp 500 million to Rp 5 billion
5. Tariff 35% fine for taxpayers earning Rp 5 billion or more

The tariff means for equality, the one who is wealthier must pay more tax. It’s good, but maybe we can make it better. What can we do now?

First, we must mitigate the rich people in Indonesia. We can get the data from many sources, from domestic or abroad, valid and accountable sources. After collecting data on, for instance, the 100 richest people in Indonesia, we can then count the potential tax that we can get. Finally, we must act. It’s the law itself. The tariff must be higher, now at 35%, but if higher, the better, for example, 40-50%. The reasons are equality and contributions to the country, because if ordinary people pay fair tax, rich people must pay higher contributions. There may be many handicaps to implementing this, the most important of which may not be listed for some reasons.

Here are some of the handicaps :

1. The law called Undang-Undang must be agreed by Parliament and the Government. It needs time and long discussions.
2. The rich must not agree with this, because the nature of business is margin. It will reduce their gain, and they want it to not happen to them.
3. The government's political will, the stronger political will from the government, will make it happen.

From the international community, we know that some countries have high tax tariffs. The main reason is equality for all. But in some other countries, the tariff is lower. The reason is to encourage economic growth and create more job opportunities.

It seems like a paradox, especially for tax urgency. If we make tariffs higher, we can earn much of the country’s income, but with speedy economic growth risk, it can be slower. But if we cut tax tariffs, it can be endorsed that speedy economic growth is faster. And it can create more job opportunities, but what happened in the United Kingdom, where the government cut tax tariffs, causing the pound sterling to fall, resulting in high inflation, is a lesson for us: a mini budget with lower taxes is not the best solution.

Let us discuss it more. In some nation during the Pandemic Era, the wealthy are significantly wealthier than in the past. On the other hand, the majority of people are suffering from the effects of the pandemic. It's ironical but it’s real. Now we talk about what we can do.

First

The government and all of us must realize that this country must be ours. That we can be a wealthy nation, safe, united, independent, moving forward. It can be reached if all of us, eager to contribute to the country, are suitable with our economic capacity. It means those who have a lot of income must pay higher tax. It is fair.

Second

Standing by the law. No one is above the law; if the bill stated that the tax rate would be reduced to 40-50% for income over Rp 5 million, it was a fixed rate; everyone must pay.

Third

Consistency means that the law must be applied consistently to different people or times; in the case of special circumstances, we can decide through examination, discussions, and an approach that is accountable and transparent.

Conclusions

One, the principle of equality, contributing together to the nation, are values that might not be left as one of the most valuable ideas from the founding fathers where this nation stands.

Second, income must be shared with people who need it, with tax as an instrument to distribute, not pooled in one person or one place. That does not follow the ideas of our nation’s values.

Third, with fair taxes, our country has a larger fund to continue realizing people's welfare, such as building more health care facilities and more qualified human resources. Better education for more people, better life for all citizens, sufficient food, housing, transportation, and so on, will be a reality in the future.

*)This article is the author's personal opinion