Opportunity to collect wealth tax from the list of richest people excluding income tax
By: Irvan Tengku Harja – Researcher The PRAKARSA
The government continues to explore the tax potential of the working class through new regulations regarding personal income tax (PPh) in accordance with Law Number 7 of 2021 concerning Harmonization of Tax Regulations. In order to be fair, the government should also explore the potential for tax revenue from the capitalist class through the wealth tax (wealth tax).
The wealth tax discourse is increasingly supported by intellectual circles. Deputy Director of the International Monetary Fund, Paolo Mauro, emphasized that the wealth tax is relevant for economic recovery, especially amid the phenomenon of "erosion" of taxes for the population at the top of the income pyramid (The Guardian, 2021). Saez and Zucman's research (2022) concludes that taxes on assets can restore progressive taxes for the super-rich. From their thinking, the meaning is implied that the taxes that apply to rich people are experiencing erosion so that they need to be restored.
The Significance of the Wealth Tax
The wealth tax found its significance to be implemented in Indonesia for at least two reasons. First, the number of tax revenue wells that have not been pumped. This is reflected in the relatively small ratio of taxes to the large gross domestic product (GDP). In 2017, the tax ratio touched 9,89 percent of GDP which amounted to IDR 13,5 quadrillion. In 2021, with a GDP of IDR 16,9 quadrillion, the tax ratio actually shrinks to 9,11 percent, even though Indonesia ideally has a tax ratio of 15 percent (World Bank, 2018).
Second, widening wealth inequality. How could it not be, the richest 1 percent of Indonesia's population destroys 30 percent of national wealth, while the poorest 50 percent only tastes 5 percent (World Inequality Report, 2022). Especially during the pandemic when the people's pockets were getting thinner, the average wealth of the 100 richest people in the country was piling up (Forbes, 2022). Through his studies, Guvenen et al. (2019) prove that wealth taxes simultaneously reduce inequality and improve economic performance.
In practice the property tax applies differently in different countries. In Norway, wealth tax is levied annually at a progressive rate of 0,5-1,5 percent with a threshold (threshold) wealth of 1,5 million krone or around Rp. 2,3 billion for single people and 3 million krone or about Rp. 4,6 billion for married people. In Colombia, the threshold is 5 billion pesos or around Rp. 16 billion with tariffs flat 1 percent (Price Waterhouse Coopers, Worldwide Tax Summaries).
The Rich's Tax
I'm with the research team PRAKARSA offers a wealth tax design in Indonesia. Property tax is levied on net worth (total asset value minus expenses). The taxpayer is high net worth individual (HNWI) with a net worth of more than IDR 144 billion. For example, an HNWI with a net worth of IDR 150 billion, then his taxable wealth is IDR 6 billion multiplied by 1 percent, which is IDR 60 million. Assets that are the object of tax calculation include savings/current accounts, time deposits, stocks, warrants, government securities, sukuk, precious metals, inheritance, donations and grants. Then, the progressive rate is 1-2 percent and is carried out through an annual tax notification report (SPT).
From the IDR 144 billion threshold, there are an estimated 4.714 taxpayers with an estimated tax revenue of IDR 78,5 trillion. The estimated revenue is more potential than twice income tax (PPh) revenue through tax amnesty in 2016 and 2022 which amounted to IDR 61 trillion.
The wealth tax does not negatively affect the wealth growth of HNWIs, who are generally non-wage earners. Based on a simulation that the author carried out on the performance of three investment instruments—deposits, gold, and the Jakarta Composite Index (IHSG)—in a year (19 August 2021-18 August 2022) with an initial asset position of IDR 150 billion, investors still enjoy profits despite the wealth tax. pulled. This is because the rate of return on capital for the performance of the three investment instruments is still positive, even though it has been trimmed by the various types of final PPh that apply plus a wealth tax rate of 1-2 percent.
The application of the wealth tax should be accompanied by prudential measures to minimize the resistance of the capitalist class. First, Wealth tax revenue is allocated for development with the nuances of social solidarity, such as social assistance, food, education, health and humanity. Much like rowing across two islands, a wealth tax increases tax revenues while at the same time reducing social jealousy.
Second, the government gives symbolic recognition to wealth tax payers. This is, for example, by setting up the name of the taxpayer as the name of the treatment room of a health facility built from a wealth tax. This is necessary because sometimes humans need appreciation for their philanthropic actions.
Third, to create a sense of peace in the hearts of taxpayers, hurry up and prosecute the evader or tax arrearer. No more tax amnestytax amnesty). If necessary, do so naming and shaming, disclose compliant and non-compliant taxpayers to the public.
By incorporating the wealth tax into the national tax nomenclature, exploration of tax potential in Indonesia becomes wider and more equitable. Not only is the financial area of the working class explored, the financial field of the financier class is also being explored.
