Indonesia Tax Amnesty Programme to Fund Infrastructure Boom

Indonesia Tax Amnesty Programme to Fund Infrastructure Boom

A little more than one month after implementation it remains to be seen if the Indonesia tax amnesty programme implemented by the government will meet its goals, with just 0.6 per cent of the target goal having been realised. While some early signs are encouraging, there are fears that the Indonesia tax amnesty programme will achieve nothing like the target set.

Scheduled to run from July 18, 2016 to March 31, 2017, the Indonesia tax amnesty programme offers immunity from prosecution and concessional tax penalties to those who voluntarily declare their wrongdoing. Confidentiality is also guaranteed, with the scheme’s creator, Indonesia President Joko (Jokowi) Widodo, promising that anyone leaking information about those who join the scheme will face a five-year jail term.

Calling on companies and individuals in Southeast Asia’s largest economy to stop shirking their responsibilities and start paying income tax as the country attempts to meet a massive infrastructure bill over the next five years, President Widodo said paying tax is a way of helping the country.

“Those with their money at home may declare it, while if parked overseas they may bring them home. This is a chance for everyone to contribute to the nation,” he said, adding: “This opportunity will never come again as the tax amnesty will not be repeated”.

Indonesia President Joko Widodo: The Indonesia tax amnesty programme will not be repeated.

To encourage participation the Indonesia tax amnesty programme offers attractive tax rates ranging from 2 per cent to 5 per cent on repatriated funds and between 4 and 10 per cent on declared, but unrepatriated money, depending on how early individuals join the programme. An estimated US$307 billion (Rp4 quadrillion) is thought to be parked offshore by wealthy Indonesians.

According to the Bank of Indonesia (BoI) and the Indonesia Ministry of Finance the Indonesia tax amnesty programme is forecast to generate inflows of $42 billion (Rp560 trillion), earning the government an estimated $4 billion (Rp53 trillion) in tax revenue. Overall it is hoped some $12.5 billion (165 trillion rupiah) in additional taxes will be generated from money stashed overseas by wealthy Indonesians, considerably more than what was realised during a similar Indonesia tax amnesty programme in 2008 which only resulted in $500 million in tax.

With just 27 million registered taxpayers out of a population of 255 million and a tax-GDP ratio of just 11 per cent, amongst the lowest in the word, the Indonesia government is in urgent need of additional revenue.

Massive Indonesia Infrastructure Programme

Indonesia plans to fund a $373 billion infrastructure upgrade programme from the Indonesia tax amnesty programme

Over the next five years it plans to spend some $373 billion (Rp4.900 quadrillion) on infrastructure projects, while the state budget is capable of financing only about a third. It therefore needs to dramatically narrow the gap between the 120 million people estimated to be eligible to pay tax from the current level.

While the immediate take-up has been somewhat tepid with only $7.6 million (Rp98.43 billion) of additional income being generated from 464 taxpayers up until the start of August, tax and economic experts see encouraging signs that the Indonesia tax amnesty programme will be successful.



Time Running Out For Indonesia Tax Cheats

Indonesia’s bonds and stocks have attracted a combined $9 billion of inflows this year, while  the local debt market even saw inflows on June 24, the day after the UK voted to leave the European Union triggering a widespread sell-off in global financial markets. On top of this the strengthening of the rupiah by 5.2 per cent this year is also seen as a positive sign for the Indonesia tax amnesty programme’s future.

However, analysts say the initial slow adoption rate is to be expected as those concerned weigh their options and the costs. They point out that repatriated funds must stay in Indonesia for three years, subjecting the owners to Indonesia’s notoriously high tax rates. Options for investing the repatriated funds are also not appealing to some, while the rupiah’s volatility over the last three years against the US dollar is dissuading to others.

For miscreants time is running out. By 2018 Indonesia will be part a global network of 94 countries and territories that have committed to a standard automatic exchange of information to combat tax evasion promoted by the Organisation for Economic Cooperation and Development (OEED). Singapore, Hong Kong and Switzerland are also part of the agreement, all favoured locations for Indonesians attempting to avoid tax.

Singapore’s Wealth Management Risk

Indonesia money forms about 42 per cent of Singapore’s wealth wealth management industry

With an estimated $200 billion of Indonesian money forming about 42 per cent of the island city’s wealth management industry, Singapore could could feel a significant impact from the Indonesia tax amnesty programme and the implementation of taxa data information sharing.

While analysts in Asean’s financial hub think that some $30 billion is likely to be stripped from the market under the Indonesia tax amnesty programme, the Indonesia government is forecasting more than double that at $76 billion, with the BoI in between the two with a forecast of $42 billion

With a global push for and a willingness to comply by the Singapore government in cracking down on money laundering and tax evasion in the wake of the Panama Papers showing the use of offshore shelters by government officials, businessmen and other prominent individuals around the world, in addition to the 1MDB scandal, Singapore’s days as a preferred place to avoid tax authorities, just like Indonesia’s neglected infrastructure, would appear to be coming to an end.





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Vat Vin

Vat Vin

Staff writer at AEC News Today

Vat Vin graduated from the University of Cambodia with a major in Economics. He previously worked as a business writer and journalist at Business Cambodia and as a copy writer at The Source and Solution Group before joining AEC News Today.

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