Competition between countries to cut corporate income tax rates is evidently increasing. The average Income Tax rate of corporate entities in the world last year was 21.4% in 2018, lower than the average rate of eight years ago which reached 28.6%.
Research results from the Organization for Economic Cooperation and Development (OECD) in various countries in the world in the past two decades have concluded that Income Tax rates are in a downward trend. The study published last weekend, also stated that fewer countries imposed corporate income tax rates above 30%.
Of 94 tax jurisdictions or countries or regions that have the authority to collect taxes recorded by the OECD, 60% of them impose corporate income tax rates of 30% or more in 2000. Last year, the amount from those have dropped to 60% which remains only 20% of countries imposed a high tax rate.
More in detail, as many as 76 countries, set lower Corporate Income Tax, while 12 other countries or regions maintain their current tariffs and 6 countries impose higher tariffs. In fact, 12 countries eliminated the Corporate Income Tax regime or imposed a 0% rate since last year.
In fact, even though the Income Tax rate dropped, the company’s tax contribution to the total tax revenue of these countries have risen. For example in 2016, OECD recorded Corporate Taxes have contributed 13.3% of total tax revenues in 88 countries. This figure is higher than record in 2000 which was only 12%.
How about Indonesia? At present, the applicable Income Tax rates in Indonesia are still at 25%, or above the average Income Tax rate in force in the world. Finance Minister Sri Mulyani acknowledged that the trend of decreasing the tax rate for corporations is underway in many countries, and the government will not remain still. However, the government would need time to review the reduction in Income Tax (PPh) rates.
The process of reducing the Income Tax rates here also cannot take place quickly because it required revision of the current Income Tax Law. The revision of the bill can only be done if the government and the House of Representatives have completed the Bill on General Taxation Provisions And Procedures Into Law (KUP), which until now has not yet finished.