Tax Rate and Income Shifting Behavior of Top Bracket Taxpayers: Evidence from Indonesia

Abstract :

This study estimates the effect of dividends tax rate reduction on income shifting behavior of top-bracket taxpayers in Indonesia by natural experiment. Income shifting behavior is measured by the Directorate General of Tax (DGT) data in the period of tax rate reduction (2008-2012). Descriptive statistics and dynamic panel data analysis show that the decrease of dividend tax rate causes income shifting to dividend income on top bracket personal taxpayers. Based on descriptive analysis, income shifting behavior occurs in quartile one and quartile four of the top bracket individual taxpayers with an average income of IDR 390 and IDR 10 billion in 2008.