State May Ease Taxes on Low-Income Workers to Help Meet Daily Needs

Camelia Pasandaran & Elisabeth Oktofani

The government is pushing to raise the cap on tax-exempt income in an effort to help workers take home more of their pay, the manpower and transmigration minister said on Wednesday.

Muhaimin Iskandar said the state was considering more than doubling the threshold on tax-exempt monthly income to Rp 2.6 million ($300) from the current Rp 1.32 million.

“This is to free [low-income] workers from the burden [of paying tax],” he said on Wednesday.

President Susilo Bambang Yudhoyono, speaking at a Labor Day event on Sunday, said he had asked concerned ministries to recalculate the maximum level of income not subject to tax.

“I’ve already asked the Manpower and Transmigration Ministry to work with the Finance Ministry and the tax office to review the appropriate amount that should be subject to tax,” he said.

“Those who cannot afford to pay tax should be exempt from it. They only earn enough to meet their daily costs of living, so it would be unfair to tax them,” the president said.

Under current regulations, monthly income in excess of Rp 1.32 million, but below or equal to Rp 2.6 million, is subject to 10 percent tax. Those earning above this bracket pay 15 percent.

“The target is to double [the threshold]. But at the very least, the tax-exemption level could be raised 75 percent,” he said, adding that the tax directorate had yet to approve the proposal.

But Muhammad Isnur, from the Jakarta Legal Aid Foundation (LBH), was not so keen on the plan, saying it did not address the real problem. “The issue here is having a decent salary to meet daily needs,” he said.

The minimum wage in the capital is Rp 1.29 million, with many workers receiving much less.

Muhaimin said the government was also planning to revise the law governing outsourcing but needed time to negotiate with companies and workers.

Labor unions have long campaigned for the abolition of outsourcing, which allows companies to hire workers on a contractual basis and are thus not obliged to provide severance, health insurance or pensions.

The minister said the government was considering banning the practice, unless for additional work or jobs not integral to a company’s day-to-day operations. “But it should be supervised and guided,” he said.

“But again, we need to discuss it once more with business associations,” he said. “So far, I have received no complaints in response to [the plan].”

On Labor Day, Muhaimin also promised to improve the social security system for workers (Jamsostek), including extending health coverage to include heart disease.