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July 4, 2008

Indonesia: Tax rate on dividends likely to be halved
Indonesia's tax on dividends is expected to be halved to 10 percent with effect from next year in a bid to encourage long-term investment in shares and boost financial markets, Reuters quoted a member of parliament as saying Thursday.

The proposed tax cut, which is part of a broader plan by the tax authorities to improve tax collection, was approved by a parliamentary working committee.

"With this reduction, investors can expect a bigger gain from dividends so they won't only look for short-term capital gains," Melchias Markus Mekeng, head of a parliamentary working commission drafting the new tax bill, told reporters.

The bill still requires approval by parliament. A plenary meeting to discuss the bill is scheduled for August.

Many Indonesians are deterred from long-term investment because of the 20 percent tax on dividends.

But the main beneficiaries of the tax cut would be big shareholders in firms such as PT Bumi Resources, the largest listed company with a market value of $17.5 billion, and PT Telekomunikasi Indonesia, valued at $16.7 billion.

The government is keen to develop the financial markets by improving regulations and providing tax incentives.

In a country where only a few million people have registered with the tax authorities, out of a total population of 226 million, the tax department is resorting to various incentives to tackle widespread tax evasion.

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