Tax Amnesty Program Indonesia is a Success Except for Repatriations
Contrary to our earlier predictions, Indonesia's tax amnesty program has been on a roll in September 2016. The program is designed to boost the government's tax revenue by offering tax evaders attractive rates to come clean and declare their previously undeclared assets (whether stashed at home or abroad in the so-called tax havens). Those who join the program can also repatriate offshore assets into Indonesia, into specifically prepared investment instruments where the funds need to stay for at least three years.
Although the nine-month tax amnesty program runs until 31 March 2017, most tax declarations and fund repatriations are expected to occur before 30 September 2016 as taxpayers can enjoy the most attractive tax rates in the period that ends on 30 September (each quarter the tax tariffs increase).
Last week Indonesian authorities announced that they will be more flexible in terms of administrative procedures in relation to the deadline of the first phase of the tax amnesty program. Attachments to taxpayers' asset declaration letters can be submitted after 30 September but they will still be able to enjoy the most attractive tax tariffs set in the first phase of the program. The government decided to be more flexible on the request of various businessmen who stated that they required more time to calculate and process documents.
Up to 11:00 pm local Jakarta time on Wednesday (28/09), the government had collected IDR 84.6 trillion (approx. USD $6.5 billion) in additional tax money under the amnesty program, or roughly 51 percent of its target (IDR 165 trillion). Meanwhile, some 8,500 new taxpayers have been added to the database of Indonesia's Tax Office since the launch of the program in July 2016.
President Joko Widodo (Jokowi) should also be praised for the successful tax amnesty program so far. A successful amnesty program indicates that there exists a high degree of trust among the Indonesian population in the current government. Perhaps also the appointment of Sri Mulyani Indrawati, a highly respected technocrat who previously served as managing director at the World Bank for six years, as Indonesia's Finance Minister in the latest cabinet reshuffle has contributed to the success.
Tax Amnesty Program Indonesia - Tax Tariffs:
| Period | Tax Tariff |
|
| Declaration of Funds | 1 July - 30 September 2016 | 4% |
| 1 October - 31 December 2016 | 6% | |
| 1 January - 31 March 2017 | 10% | |
| Repatriation of Funds | 1 July - 30 September 2016 | 2% |
| 1 October - 31 December 2016 | 3% | |
| 1 January - 31 March 2017 | 5% |
Source: Indonesian Finance Ministry
However, asset repatriations are still somewhat left behind. By 11:00 pm on Wednesday, a total of IDR 142.3 trillion (approx. USD $10.9 billion) had been repatriated into Indonesia, or roughly 14 percent of the government's target (IDR 1,000 trillion). As fund repatriations should become more scarce as we approach the second (and third) phase of the program, implying higher tax tariffs, this government target may not be achieved. If not achieved, this failure is due to the unattractive rates that are offered (compared to the rates that apply in tax havens) and the unattractive requirement to keep assets in Indonesia for at least three years.
Most of the funds that have been repatriated so far into Indonesia originate from Singapore, Cayman Islands, British Virgin Islands, Australia, Hong Kong and China.
Indonesia's tax amnesty program in 2016/2017 is already more successful compared to similar programs in Italy (2009), Chile (2015), Spain (2012), South Africa (2003), Australia (2014) and Ireland (1993).
Bank Indonesia Governor Agus Martowardojo said asset repatriations are more important compared to tax declarations in terms of overall economic growth of Indonesia. According to the central bank, if there are asset repatriations worth up to IDR 180 trillion under the tax amnesty program, then it should boost Indonesia's GDP growth by 0.1 additional percentage point in 2017. The Indonesian government targets for a 5.1 percent (y/y) economic growth pace in the 2017 State Budget.
Tax Amnesty Program Indonesia - Score So Far:
| Target (in IDR trillion) |
Per 28 Sep '16 (in IDR trillion) |
Achieved | |
| State Income |
165.0 | 84.6 | 51.3% |
| Repatriation of Funds | 1,000.0 | 142.3 | 14.2% |
Source: www.pajak.go.id/statistik-amnesti
Poll Indonesia Investments:
Do you think that Indonesia's tax amnesty program will be a success?
Voting possible: -
Results
- Yes, I do (50.6%)
- No, I don't (32.8%)
- I don't know (16.6%)
Total amount of votes: 2421
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