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The Imposition of Tax On Inheritance in Indonesia, A Complementary Tool To Tackle Inequality - Rieska Wulandari
The Imposition of Tax On Inheritance in Indonesia, A Complementary Tool To Tackle Inequality - Rieska Wulandari
The Imposition of Tax On Inheritance in Indonesia, A Complementary Tool To Tackle Inequality - Rieska Wulandari
ABSTRACT
Indonesia has enjoyed high and stable economic growth during the last decade.
However, the benefits of growth have not been shared equally. Wealth inequality is
widening in recent years which gives a serious threat to sustainable growth. The taxation
policy still faces challenges to support inequality-reducing programs. The limitation of
Personal Income Tax to conduct redistribution role and the absence of capital gain tax in
Indonesia are some of the challenges faced in the fiscal policy field. Inheritance is
assumed to be one of the sources of wealth accumulation. To reduce the gap between
the richest and the rest, it is time for Indonesia to impose an inheritance tax . This paper
examines the suitable inheritance tax design for Indonesia taking into consideration of
experiences from a few selected countries. Based on the analysis, Indonesia should have
an estate tax model with basic exemption starts from IDR 14.5 billion (USD 1 Million).
Keywords: inequality, inheritance tax, redistribution, taxation policy
ABSTRAK
Indonesia menikmati pertumbuhan ekonomi yang tinggi dan stabil dalam sepuluh
tahun terakhir. Namun demikian manfaat dari pertumbuhan tersebut belum
sepenuhnya dirasakan secara merata. Di beberapa tahun terakhir, ketimpangan
kekayaan semakin melebar yang memberikan ancaman serius terhadap pertumbuhan
ekonomi yang berkelanjutan. Kebijakan pajak masih menghadapi tantangan untuk
mendukung program pengurangan ketimpangan. Keterbatasan peran Pajak
Penghasilan untuk menjalankan fungsi redistribusi dan absennya pajak atas capital gain
merupakan beberapa tantangan yang dihadapi. Warisan merupakan salah satu sumber
akumulasi kekayaan. Untuk mengurangi jarak antara golongan terkaya dan golongan
lainnya, sudah saatnya Indonesia mengenakan pajak atas warisan. Tulisan ini
mempelajari desain pajak warisan yang paling sesuai untuk Indonesia dengan
mempertimbangkan pengalaman dari beberapa negara yang diamati. Berdasarkan
hasil analisis, Indonesia dapat menerapkan model estate tax dengan batas pengenaan
pajak mulai dari Rp14,5 Miliar (1 juta USD).
Kata kunci: ketimpangan, pajak warisan, redistribusi, kebijakan pajak
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1. INTRODUCTION
1.1 Background
1.1.1 Rising Inequality In Indonesia
World Bank report of Indonesia’s Rising The condition of wealth distribution in the
Divide in March 2016 shows that the World Bank report is almost similar to
degree of wealth inequality in Indonesia more recent work by Credit Suisse
is relatively high and rising more rapidly Research Institute which was published in
than many other East Asian Countries. November 2016. Their Global Wealth
The report reveals that 10 percent of the Databook 2016 stated that 10 percent of
richest people in Indonesia owns the richest people in Indonesia owns
approximately 77 percent of the approximately 75.7 percent of the
country’s wealth, while the top 1 percent country’s wealth, while the top 1 percent
owns around 50.3 percent of the owns around 49.3 percent of the nation’s
nation’s wealth (figure 1). wealth (Figure 2).
Source: Credit Suisse Global Wealth Databook 2016, processed from table 6-5 wealth shares and
minimum wealth of deciles and top percentiles for regions and selected countries
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The World Bank report brings up the The study found that at the beginning
main determinants that give rise to inequality may not endanger economic
inequality in Indonesia. One of them is growth, but once it exceeded certain limits
high wealth concentration. A few it would have opposite effects. This study
Indonesians are benefiting from the suggests that it is important to overcome
ownership of financial assets, increasing inequality before it turns to
sometimes acquired through corrupt become detrimental for growth. Another
means, which later, raise higher research conducted in Indonesia related
inequality both today and in the future. to inequality is studied by Luca Mancini
(2015). His study analyzes the impact of
1.1.2 Rising Inequality and Its Impact inequality from non-economic dimen-
on Growth sions. Based on data at the district level in
Indonesia, it was found that horizontal
Some literature have examined the inequality in infant mortality rate was
impact of inequality on growth. The positively related to the occurrence of
previous statistical result shows that deadly ethno-communal violence. The
inequality can hamper the growth, at infant mortality rate is also a reflection of
least in the medium run. Person and inequality in other dimensions because it
Tabellini (1993) find that inequality is exposes the relative misery of the poorest
negatively correlated with subsequent groups in society.
growth. In one of their conclusions,
Berg, Ostry, and Zettelmeyer (2012) 1.1.3 The Absence of Capital Gain Tax
state that a less equitable society tends
to experience lower and less stable The capital gain tax has a redistribution
growth. A more recent study has looked effect to hold down the concentration of
at the impact of inequality in the same wealth. Wealth may increase due to saving
direction. Ostry, Berg, and Tsangarides or due to an increase in asset value
(2014) conclude that in the medium and (Hungerford, 2010). Under the capital
long term, inequality may result in low gain tax, real increases in capital assets will
and unsustainable growth. In line with be taxable. Ideally, the tax is accrued
this finding, the International Monetary annually because the value of assets
Fund (IMF) reveals that reducing always changes, but in practice, it is
inequality will generate an upturn in difficult to implement especially for capital
growth in the medium run. assets that are not actively traded. In
Domestically, researches in Indonesia general, capital gain tax is imposed when
also showed similar results. The SMERU it is realized or there is a transfer of
Research Institute used data-level ownership. Some countries like Japan and
districts for the period 2000-2012 to the United States apply multiple rates for
examine the effects of inequality on capital gain tax based on the length of
economic growth and unemployment ownership. Short-term-holding period
in Indonesia. gain is subject to higher tax rates than the
long term one to discourage speculation.
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The transfer of property in Indonesia is The property price index in the last 7 years
subject to the final income tax with a 2.5 increased by around 54 percent from 130
percent rate. The tax base is the transfer in 2011 to 200 in 2017. When the transfer
value of a property which is payable by of property occurs, the increase in
the seller. On the other side, the buyer is property value is subject to a 5% final
subject to excise-on-acquired-right-on- income tax before August 2016 or 2.5%
land-and-building managed by the thereafter. This situation has allowed the
local government. Figure 3 displays well-being to accumulate more wealth
residential property by price index over because the increasing value of their
the past 7 years which shows an wealth is only subject to a low level of
increasing trend. taxation.
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Second, the PIT threshold at the top The role of fiscal policy should secure the
bracket seems a bit high compared to lowest income household from being left
other countries. Although the PIT rate behind the prosperity of growth.
structure in Indonesia is comparable to A redistributive fiscal policy
regional peers, however, the top PIT consists of a combination of progressive
rate which is 15 times GDP per capita is tax and transfer instruments (IMF, 2017).
higher compared to OECD (3.8), The magnitude of direct tax and transfer
Singapore (4.9), and Malaysia (3.1). impact on income inequality differs
Reducing the threshold of the top rate between developed and developing
by about half to 7 times GDP per capita countries. In developed countries, direct
will broaden the tax base for the top 3 taxes and transfers manage to reduce
percent of the Income distribution (IMF, income inequality by about one-third, with
2017) and will have more impact to two-third of the decline is achieved
deter inequality. through transfers mechanism (Paulus and
The third cause is the limitations others, 2009; IMF, 2014). On the other
of tax administration to capture the hand, the effect of fiscal redistribution is
large value of wealth. Based on asset relatively small in developing countries
declaration in tax amnesty program which raises two notions, lower level of
from 2016 to 2017, around USD 88.33 progressive taxation and spending, and a
million assets of domestic taxpayers had tendency to depend on indirect tax.
been placed offshore. The assets placed Some empirical studies weigh the
in the tax-haven countries may be impact of redistributive fiscal policy. They
derived from income that has never basically analyze the changes in incomes
been taxed in Indonesia. Access barrier after taxes and transfer. Many of them
to taxpayer information also contributes confirm differences due to direct taxes and
to the limited role of PIT for transfers between developed and
redistribution. developing economies. Chu, K-Y.,
Davoodi, and Gupta (2004) find that for
1.2 Fiscal Policy Options to Tackle redistribution, the outcome of direct taxes
Inequality and transfers in developing (and transi-
tion) economies are not as extensive as in
1.2.1 Fiscal policy to redistribute
industrial countries. They argue that
Government intervention would be beside limited transfer programs, the tax
necessary to prevent further widening structure of developing countries which
of the gap between the rich and the are marked with dependency on indirect
poor. Commonly, fiscal policy becomes taxes and limitation on wealth taxes curbs
the government's fundamental tool to the ability of fiscal policy to redistribute. A
improve income and wealth distribution study by Martínez-Vázquez, Vulovic, and
which is conducted through tax Moreno-Dodson (2012) also found that
instruments and public spending. both taxes and transfers give a
considerable impact on reducing Gini
Coefficient.
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Source: IMF Working Paper 2016, Sharing the Growth Dividend: Analysis of Inequality in Asia
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1.2.3 Inheritance tax as a complementary Yet, the fact that inheritance tax is also
tool to tackle inequality levied in some of emerging economies
means it is worth to be considered as a
Based on various efforts to overcome new tool to tackle inequality in Indonesia.
inequality, social spending is the most
perceived benefit to raise the living 2. THEORETICAL FRAMEWORK AND
standard of the poor and narrow the HYPOTHETICAL DEVELOPMENT
distance with the top income group. On 2.1 Key Features of Inheritance Tax
the other side, a low level of taxation
becomes a challenge to ensure that An inheritance tax is levied when a wealth
social programs can be sustainable. transfer occurs at the end of someone’s
Therefore, exploring new types of taxes life. When a person passes away, in most
might be considered as an option. This cases, all the property will be passed to
paper offers a complementary tool to the descendants. After all the obligations
tackle inequality from the tax policy side related to the estate and the deceased are
by introducing an inheritance tax . So paid, the state will impose a tax on the net
far Indonesia has implemented a pro- value of the bequest.
gressive income tax and tax on the sale Globally, there are two common
of luxury goods as redistributive tax practices to impose a tax on inheritance.
instruments. However, the fact that The methods may take the form of
uneven distribution of wealth in Indone- inheritance taxes, estate taxes, or a
sia becomes greater requires new mixture of inheritance and estate tax. It
mechanisms to address the wealth con- depends on each country's policy whether
centration in the richest household. to choose a transferor-based system or a
Taxation literatures reinforce the recipient-based system. An estate tax is
argument that progressive direct tax is a levied on the transfer of property from the
key element for creating an effective deceased, therefore the tax base is the
fiscal redistribution. Inheritance tax total value of bequest. Under the
together with gift tax can become a inheritance tax model, the tax is levied on
backstop for income tax, appropriate the amount of property inherited by each
for Indonesia's condition where taxes on descendant (Darcy, 2016).
capital income are relatively low. A
more intensive explanation of tax on 2.1.1 Gift Tax as Complement of
inheritance and why this tax is suitable Inheritance Tax
for Indonesia conditions will be
described further in the next chapter. Most jurisdictions with inheritance tax in
This tax is quite complex in its applica- their tax systems also levy gift tax. A gift
tion even for developed countries tax is imposed on any transfer of property
because it involves a reliable valuation before the end of someone’s life. If lifetime
of property. transfer on wealth is not subject to a gift
tax then people can transfer all of their
properties before death, hence the
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inheritance tax burden can be reduced system (Piketty, 2015). In the situation
or even erased entirely. A gift tax is where income tax is also restricted by
designed to complement informational asymmetry, tax on bequest
inheritance tax as an effort to deter tax can become the last defense on
avoidance. redistribution (Cremer and Pestieau, 1999).
Piketty is concerned about the
2.1.2 Redistributive Role of Inheritance solution to the global tax on capital will be
Tax hampered by informational asymmetry,
where the richest taxpayers with tax
Some scholars discuss taxation of inher- planning can avoid tax. In this case, it will
itance as one of the policy options to be difficult for the government to trace
overcome inequality. Inheritance is their wealth. A progressive tax on capital
considered as one of the elements will involve international cooperation and
behind the growing trend of inequality. transparency of financial information.
The concentration of wealth in the hand Again, the world finds new hope through
of a few gives rise to unequal the implementation of automatic
opportunities for humans to start their exchange of information, the international
lives. Economic growth may not cooperation of taxation data on a global
guarantee a life improvement for the scale. This momentum strengthens the
least-well-off. The research shows that in reach of governments to monitor the
the last centuries, the rate of return on mobility of wealth.
capital is greater than the rate of
economic growth. It is highly probable 2.2 Criticism on Inheritance Tax
that the origin of the return is mainly
derived from previous wealth A series of arguments put forward by
accumulation and not solely come from parties opposed to the application of
labor income or saving alone (Piketty, inheritance tax. The debate over the
2014). No matter how hard a person implementation of this tax takes place
studies and works, he will not be able to along with the growing attention to
achieve the same level of comfort inequality issues. Criticism ranging from
provided by inherited wealth. the economic to social aspects as detailed
The empirical analysis in the in the following descriptions.
OECD's Tax and Economic Growth
(2008) revealed that tax on inheritance 2.2.1 Unfair for People Who Work Hard
is more favorable to economic growth and Save More
than personal and corporate income This tax is often considered unfair because
tax. It has less distortion effect than people who work harder than the average
other taxes, so it only gives a minor people or who do more savings are even
effect on consumption or other restricted in executing their right which is
economic activities. Ideally, to address according to the opponent, is their
inequality, inheritance tax should be freedom to distribute the results of their
included in the optimal capital tax efforts to whomever they wish.
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2.2.2 Reducing Desire to Work, Invest carry out assets and debts valuations.
and To Be Productive The proponent side of inheritance
tax argues that although revenue
One of the motivations of people to collected from inheritance tax is relatively
work and to be productive is to a small portion of total tax revenue, it is
accumulate wealth. Taxing the wealth still a substantial amount. Some states
accumulated at the end of one's life will even show an upward trend in revenue
reduce the desire to work, invest, and from this tax contribution.
become productive. As a country's
economy grows, more and more 2.2.4 High Administrative Cost
middle-class people will increase their
assets and the worries of going into Taxpayers have to spend more time and
inheritance tax coverage will weaken expenditures to meet tax compliance. The
their productivity (Bartlett, 2000). efforts range from collecting and
The opposition to this argument preparing documents to the use of
states that the reason for working hard appraiser's services. The same criticism is
is not merely to leave wealth for the also addressed to the administrative costs
next generation. Many of the incurred by the tax authorities which are
psychological reasons that drive people assumed to be burdened with the
to work, including to actualize assessment of assets.
themselves, gain prestige, power, and This critic may refer to the paper
as human nature to survive (Hauser, issued in 1992 by Henry Aaron and Alicia
1999). Even with the inheritance tax Munnell which concludes that the
imposition people can behave compliance cost of estate tax almost
otherwise. Knowing that the wealth will approaches the amount of revenue
be taxed when transferred to the heirs, collected. However, a more recent study
people may work harder so the bequest concludes otherwise. Research conducted
left will be sufficient enough for their in the United States shows that the cost to
successors (Rywick, 2014). administer estate tax averaged 7% of total
estate tax revenue (Davenport and Soled,
2.2.3 Raising Only Low Level of Revenue 1999).
The substance of the asset is modified One of them is in line with accidental-in-
so that its value may legally be reduced come theory. The theory stated that
by tax law. An example of such action inheritance is a sudden or somewhat
includes forming a partnership to own unexpected result obtained without the
inherited assets so that its market value participation of the heirs in the
becomes lower. accumulation of wealth. The accepted
windfall will increase the heir’s ability to
2.3 Arguments for The Imposition of pay tax. The other argument is related to
Tax on Inheritance privilege received by descendants.
Inheritance can be passed on to the heirs
People are wondering, with an because it is regulated under the civil law.
insignificant level of revenue collected The heirs earn privileged from the state
why inheritance tax is still enforced in guarantees that the wealth will not be
many jurisdictions. Moreover, this tax is given to the other parties.
growing in complexity for reasons
beyond increasing revenue. Various 2.3.3 A Way to Redistribute
literature provide rationales for
understanding the philosophies behind Inheritance tax can be one of the tools to
this policy. reduce the concentration of wealth in
small groups of people. Such concentra-
2.3.1 It Is A Fair Tax tion can jeopardize the democracy of a
nation. Extreme distribution of wealth will
Inheritance tax imposition is considered affect power. Power over resources and
justified as it is in line with the capital can lead to the power of
ability-to-pay principle and minimal controlling the rules and who can
sacrifice (Smith, 1776). Inheritance tax challenge the ruling authority (Oxfam
only affects a small group of society who Briefing Paper, 2017).
receives a substantial amount of
bequest and those people who can 2.3.4 Promote Incentive to Work
share their fortune to help state
financing. The proportion of Andrew Carnegie, in his influential essay,
contribution is proportional to their The Gospel of Wealth (1889) stated that
interest in the country. Groups with a parents who spoiled their children with
large amount of wealth tend to require enormous fortune consciously risk their
greater protection from the state. children to live an idle life. In line with
Carnegie, more recent work by Andrew
2.3.2 The Imposition Is Justified by Some Danforth and Chason (1997) finds
Economic Theories empirical evidence that higher
inheritances are correlated with a higher
Max West (1999) pointed out some tendency of leaving the workforce.
arguments as justification for the
imposition of inheritance tax.
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In addition to the stagnant trend of tax In the era of the 1970s, the inheritance tax
revenue, each country has its in Sweden was once so high and peaked
background before finally deciding to in 1983 with a rate of 70% for spouses and
remove the inheritance tax from its tax children. According to Forbes Magazine
system. Singapore for example, the (2017), Ikea founder Ingvard Kampar left
city-state is known to have a liberal Sweden in 1973 in the period where the
policy on immigration. Many overseas inheritance tax rate was so high. After the
migrants settle down in Singapore abolition of inheritance tax in 2014,
because the country attempts to attract Kampar returned to his homeland.
professionals to enter the labor market Norway has a somewhat different story
due to limited domestic human from Sweden. The Norwegian
resources. On the other hand, many government decided to abolish the tax in
Singapore people move abroad and 2014 due mainly to low revenue and
become a global citizen, doing saving state administrative costs.
business, or searching for education. Inheritance Tax afterward being replaced
The Singapore government tries to by the principle of continuity in capital
reconnect with overseas- gain taxation. The continuity principle in
Singapore-people, wishing that they will Norwegian tax means that the heir will
return and build their homeland. The inherit his predecessor’s fiscal position
same condition applies to Macau and (Zimmer, 2014). Under this rule, the
Hong Kong, both are Special taxpayer may experience a considerable
Administrations Regions (SARs) under tax increase, particularly in transfer cases
China. Their territory is given special where the property was acquired at a
autonomy to run the capitalist relatively low value some time ago.
economy. Like Singapore, these two On the opposite side of the juris-
regions try to make their jurisdiction dictions mentioned above, other states
attractive to migrants. Both offer a loose take a different standpoint. After 72 years,
immigration policy, low level of taxation, Thailand brought inheritance tax back into
and minimize restrictions for trade. With its tax system in 2016. The country once
such a situation, Singapore, Hong Kong, imposed inheritance tax in 1933 and it had
and Macau adopt a simple taxation lasted for 10 years until it was repealed in
system, including repealing inheritance 1944 due to the low revenue and the diffi-
tax from their tax system. cult economic situation of Thailand post-
Sweden and Norway are some war. Recently, wealth distribution in Thai-
of the OECD member countries which land is among the most unequal in the
abolished inheritance taxes in the world and it was one of the reasons for the
2000s. The Economist magazine (2014) Thai government to reintroduce the tax.
notes that the high tax burden including The failure in previous experience became
inheritance tax, has made some a lesson to improve the inheritance and
entrepreneurs move their business gift tax administration system. Meanwhile,
abroad. other Asia nations, Japan, and Korea
decided to increase their inheritance tax
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top rate. Korea strengthened its From the Latin American region, Brazil
inheritance tax system by raising its top also plans to conduct tax reform on
rate from 45 percent to 50 percent inheritance by lowering the threshold and
starting in 2000. The same step was also increasing the rates by January 2018.
taken by Japan which raised its top International development
inheritance tax bracket to 55% and it surrounding inheritance and gift tax issues
has become the highest inheritance tax provides an overview of what to consider
rate in the world. Furthermore, in 2017, before applying this tax. On one side there
Japan conducted inheritance and gift is a trend to abolish inheritance tax but on
tax reform to close tax avoidance the other side, many states continue to
loopholes. Japan expanded its improve their administration and policy to
inheritance and gift tax base by strengthen this tax. Finally, as there is no
including more foreigners residing in one size fits all, it depends on the
Japan into the tax net. conditions and needs of each country to
design its tax structure.
While some jurisdictions that decide to abolish inheritance tax, other states still imposed
this tax. Figure 6 shows the fluctuating trends of inheritance tax revenue among
selected OECD countries, reflecting that inheritance is imposed not solely to collect tax
revenue. The nations use it mainly as a fiscal policy for redistribution. This tax does not
have a large tax base such as income tax or VAT. The revenue contributions are around
0.7% up to 1,3%. The revenue trend depends on the tax reform (changes in tax rate,
threshold, exemptions), the amount of mortality, and changes in property market
prices.
Figure 6 Inheritance, Estate and Gift Tax Revenue of France, Japan, South Korea, and the UK
(as % of total tax revenue 1965-2015)
Source: Data extracted on 03 Dec 2017 06:04 UTC (GMT) from OECD Statistics
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Source: Data extracted on 04 Dec 2017 21:55 UTC (GMT) from OECD Statistics
Inheritance and gift tax revenue in Brazil, South Africa and Philippines contribute less
than 1 percent of total tax revenue. This shows the same pattern as in developed states
that inheritance and gift tax only produce a small revenue share when compared to
total tax revenue. Of the three countries shown in Figure 8, only Brazil collects more
than 0.80% of total tax revenue, above the OECD average (0.4%). Although in the other
two countries the contribution of inheritance and gift tax to total revenue is lower, but
the revenue trends show an increasing pattern, might reflecting the development of tax
administration and policy to improve the tax performance. Of the three countries, only
Brazil experienced a sharp increase and a decline in the inheritance tax revenue trend.
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4.4 Basic exemptions and tax rates 4.4.1 Basic exemptions and tax rates
analysis comparison in advanced economies
In this section, we will analyze some of Basic exemption and tax rates in selected
the basic features of inheritance tax, countries are shown in Table 1. Basic
which are basic exemption and tax exemption in all four countries is set at
rates. For wealth redistribution, the least 10 times of GDP per capita value. For
basic threshold for inheritance tax France and the UK, they give full
should be set very high, at the top of exemption to a spouse so the basic
wealth distribution. The consequence of exemption shown in the table only applies
this policy will result in a narrow tax base to a descendant and an ascendant.
because it only imposed on very rich Although high thresholds are often
people. It explains one of the reasons associated with a narrower tax base, these
why inheritance tax revenue is relatively countries generate revenue from
low since only a small proportion of inheritance and gift taxes above the OECD
society pays this tax. However, some average. Furthermore, Japan, South
countries are choosing lower basic Korea, and France collect more than 1% of
exemption to catch a broader tax base. total tax revenue from inheritance and gift
With this kind of policy, in addition to tax. As shown previously in Figure 6, only 4
redistribution purposes, the countries, those three countries plus
government also aims to collect an Belgium, collect more than 1% tax on
adequate level of revenue. inheritance.
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Among some developing countries that apply inheritance tax as shown in table 3, the
size of the basic exemption is more varied. Philippines and
Brazil set a fairly low threshold, South Africa put a considerably high level of basic
exemption, while Thailand's is very high.
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Table 3 Comparison of the Inheritance Tax Threshold in selected emerging economies, 2017
Lower tax thresholds might expand the tax base and increase more revenue, however,
the impact on redistribution will be lower. South Africa with higher exemptions and tax
rates has a better distribution of wealth. Developing countries' experiences show that
lower thresholds and tax rates have a smaller impact on inequality as reflected in the
distribution of wealth in table 4.
Table 4 Distribution of adults (%) by wealth range (USD)
Source: Credit Suisse Global Wealth Databook 2016
under 10,000 - 10,000 - over 1
10,000 100,000 100,000 million
(1) (2) (3) (4)
Philippines 87 12 0.8 0.1
Brazil 72.9 25.2 1.8 0.1
South Africa 69.9 27.5 2.5 0.1
The ia a The othe the sAn e'sthe the sthe cost incurred for inheritance tax. Some
the Collecting and maintaining proper- considerations may affect which parties
ty information can be the most expen- should make an assessment, on tax official
sive feature of taxing inheritance. or taxpayer. One of the consequences of
Administrative costs related to property the official assessment system is increasing
valuation can be the largest part of the administrative costs.
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It is also potentially more time- Tax reform will work properly if the
consuming in the case of limited taxpayer is willing to comply. The
personnel. On the other hand, although reluctance to new tax can be minimized if
self-assessment seems to be easier to the taxpayers feel that they receive
implement because it does not require adequate services for the tax they pay and
additional assessment officers, it is if they believe that the system is fair and
difficult to ensure the credibility of data accountable (Birds and Slack, 2002). If the
provided by the taxpayer. In other official assessment is applied in Indonesia
words, official assessments would save at the beginning of inheritance tax
audit costs. implementation, taxpayers will be
Although almost all countries provided with convenience by mitigating
studied use a self-assessment system the cost of compliance. After a certain
for an inheritance, South Korea applies period of tax introduction, the
a different approach with an official government can gradually complete the
assessment system for inheritance tax. guidance for valuation rules, then the
Under this system, taxpayers will submit responsibility to conduct valuation can be
the list of inherited properties to the tax shifted to taxpayers.
agency and then the valuation will be
conducted by the government 5.2 Tax Model
appraiser officer. The official assessment
for inheritance tax seems to be worth Commonly, there are two models used to
considering at the beginning of impose a tax on inheritance. The benefit
inheritance tax implementation. and shortcomings of each model are
described in table 5.
It will be easier for taxpayers to Thresholds can be set very high, at the top
understand the new law. The second layer of wealth distribution if the state
consideration is the capability of tax tends to focus on redistribution. On the
administration. Inheritance tax has the other hand, if the needs for additional
potential to increase administrative revenue are more prominent than the
burden due to a greater number of tax redistribution role then the basic
returns filed, in this case, an estate tax exemption should not be set too high.
model will simplify the tax Table 6 shows the composition of
administration. The third is to limit tax wealth per adult divided into several
avoidance efforts as tax is imposed ranges. The majority of adults, 84.3%, is in
immediately at the time of transfer. the bottom class with wealth below USD
10,000, while adults with wealth valued
5.3 Basic Exemption above USD 1 million is only 0.1%. Previous
data in figure 2 shows that the largest
There are a variety of sizes of basic piece of the pie, 49% of the national
exemption among developing wealth is owned by the top 1%. If the data
countries. The sizes of basic exemption in figure 2 is compared with table 6 then
range from the Philippines which set the richest 1% is in the wealth range of
6.72 times from the size of GDP per around USD 100,000 - higher. To restrain
capita to Thailand with 520 times. The the accumulation of wealth in the richest
basic exemption size depends on what group, inheritance tax can be imposed on
the government wants to achieve. the greatest concentration of wealth,
therefore basic exemption should be set at
least USD 1 million.
If the threshold is set from USD 1 million As previously shown in figure 1, the World
(IDR 13.4 billion) then it would be Bank reveals that the richest 1% of
equivalent to 280 times Indonesia GDP Indonesia and Thailand own around 50%
per capita. The high level of threshold is of national wealth.
similarly seen in Thailand which sets the
basic exemption very high, 520 times its
GDP per capita. The condition of
Indonesia's wealth distribution is almost
as wide as Thailand.
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Rieska Wulandari / The Imposition Of Tax On Inheritance In Indonesia... (2020) 1-26
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Rieska Wulandari / The Imposition Of Tax On Inheritance In Indonesia... (2020) 1-26
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