Update Tax Amnesty Program Indonesia: Disappointing 2nd Phase
The first phase of Indonesia's tax amnesty program was a success in terms of tax declarations and state revenue (penalties). Fund repatriations, on the other hand, were disappointing as - apparently - Indonesian tax payers find it not attractive enough to transfer these funds into Indonesian investment instruments or lack confidence in Indonesia's political and financial stability (perhaps still haunted by traumas from the Asian Financial Crisis in the late 1990s). However, Indonesian Finance Minister Sri Mulyani Indrawati remains optimistic that repatriations will rise soon now the winner of the US presidential election is known.
Minister Sri Mulyani Indrawati said the disappointing inflow of fund repatriations into Indonesia under the government's tax amnesty program is because businessmen are still waiting for the right moment. She emphasizes that tax payers have time until 31 December 2016 to repatriate funds under the terms and conditions of the program's second phase and therefore we should not expect to see a high amount of fund repatriations in the October-November period.
Yustinus Prastowo, Executive Director of the Center for Indonesian Taxation Analysis, agrees and said there is currently no incentive for Indonesian tax payers to join the program. Instead, they will simply wait for the next deadline (31/12/2016). This also applies to those who still want to declare their domestic or foreign assets. They may prefer to wait until late-December, particularly now Indonesia is plagued by a high degree of ethnic and religious tensions due to the "Ahok blasphemy case" as well as severe volatility in global financial markets after Donald Trump won the battle for the US presidency.
Up to October 2016 fund repatriation commitments stood at IDR 142.7 trillion (approx. USD $10.7 billion), while IDR 41 trillion has already been transferred into Indonesia. The rest is expected to be repatriated in late December 2016. Starting from January 2017 (the third and last phase of the tax amnesty program) tax tariffs will rise and therefore become less attractive to tax payers.
Funds that are repatriated into Indonesia are required to remain in specific investment instruments (that have been determined by the government and financial authorities) for at least three years. Ongoing domestic tensions and global uncertainty make it unattractive for these people to keep their assets in Indonesia for such a long period.
The second phase of the tax amnesty program (1 October - 31 December 2016) has been performing poorly so far, not only in terms of fund repatriations but also in terms of declarations and additional government tax revenue. Government revenue from tax amnesty penalties rose below 2 percent between the end of the first phase (30/09/2016) and Monday (21/11/2016). This poor performance calls for a redefining of the focus of the tax amnesty program.
Since the surprise victory of Donald Trump in the 2016 US presidential election, global investors withdrew IDR 16 trillion (approx. USD $1.2 billion) from Indonesia, indicating that investors currently prefer to exit their funds from Indonesia rather than placing funds into Indonesia. This also impacts on the tax amnesty program. It seems global investors are currently waiting on the Federal Reserve meeting in mid-December to learn more about US monetary policy (a possible Fed Funds Rate hike) and more clarity about the economic and political policies of the Trump administration.
Around 430,000 tax payers have been added (so far) to Indonesia's tax database during the tax amnesty program. To illustrate the importance of tax payments to society as a whole, Finance Minister Indrawati said with IDR 1 trillion (approx. USD $75 million) from tax revenue, the Indonesian government can pay 9,400 teachers per year, or 10,000 police officers, or provide subsidy to 550,000 small and medium-sized enterprises, or build 3,541 meters of bridges, or 155 kilometers of roads.