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Jokowi challenger moots tax cuts to stimulate economy

Jakarta

INDONESIAN presidential candidate Prabowo Subianto is proposing deep tax cuts to stimulate South-east Asia's largest economy, copying the playbook successfully used by US President Donald Trump.

Mr Subianto and his running mate Sandiaga Uno will lower company and individual taxes by between 5 and 8 percentage points over five years, as well as widen the tax-to-gross domestic product ratio to at least 16 per cent from about 11 per cent, according to Anthony Budiawan, an economist advising the pair's campaign.

Lower taxes will lead to greater compliance and allow the government to cut its borrowings to fund its budget, he said.

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The economy has taken centre-stage in Indonesia's presidential election campaign, with Mr Subianto targeting incumbent Joko Widodo's policy of adding to record government debt to finance building roads, ports and dams worth billions of dollars.

The swelling of government debt and its high foreign ownership were factors in a market sell-off last year, which saw the rupiah tumble to levels not seen since the 1997-98 Asian financial crisis.

"Our corporate tax is one of the most expensive in the region," Rizal Ramli, a former finance minister, told reporters in Jakarta last Friday. ''Lower tax rates will make Indonesia more competitive."

Indonesia now has a top personal income tax rate of 30 per cent and a corporate tax rate of 25 per cent.

Mr Subianto, who's popularly known as Prabowo, is taking on Widodo - more widely known as Jokowi - in a rematch of the 2014 election, which he narrowly lost to the former furniture businessman and the first non-elite to occupy the presidential office.

The former general has picked Mr Uno, a business-savvy former private equity investor, and has blamed the high public debt and slump in the currency as examples of Mr Widodo's mismanagement of the economy.

If elected, Mr Prabowo will also introduce a progressive individual tax rate, with the rich paying more to ensure a more equitable society, Mr Budiawan said.

A cut of between 5 and 8 percentage points in corporate tax can boost economic growth by as much as 0.7 percentage point a year in the short term and deliver a 1 percentage point increase in the tax-to GDP-ratio, said Harryadin Mahardika, a member of the pair's economic team.

While Mr Widodo's government has failed to increase the tax ratio despite introducing an amnesty plan while it continued to rely on revenue from commodities and debt to finance the budget, a Prabowo administration will overhaul the tax bureaucracy to make it more efficient, Mr Mahardika said.

"Everyone understands the capability of Prabowo and Sandi. They are entrepreneurs and know what they are doing," he said. "The current administration gives false hope. We won't do that. We can make Indonesia great again as Prabowo said."

Mr Widodo, who came into office promising to deliver annual growth of 7 percent, is set to miss the target by a wide margin as the economy has expanded at about 5 per cent during his tenure.

But the incumbent enjoys a lead of 20 percentage points in opinion polls over Mr Prabowo after he created millions of new jobs and spent billions of dollars to add roads, ports and airports to cut logistic costs in the archipelago.

The incumbent, who's paired with Ma'ruf Amin, a conservative Muslim cleric, will focus on fiscal and structural reform and development of manufacturing and export-oriented industries to create more jobs, according to Mr Widodo's election manifesto.

The Prabowo-Uno combination will also involve more private sector participation and end the dominance of state-owned enterprises in projects and opt for more multilateral free-trade agreements than bilateral pacts.

The pair's agenda also includes more protection for certain local industries like Mr Trump has done. Mr Mahardika said Mr Uno will act as an economic ambassador travelling the world to further Indonesia's trade and economic interests. BLOOMBERG