Sofyan Djalil, Indonesian Minister of Agrarian Affairs and Spatial Planning, says the progressive tax on land that is deemed idle will not disturb the investment climate of Indonesia because industrial estates and land that has a clear development purpose are exempted from this tax (this includes land destined for property development projects). Through the progressive land tax the government wants to combat speculative land buying, something that has become a problematic phenomenon in Indonesia.

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The government of Indonesia is confident that it will collect IDR 1,498.9 trillion (approx. USD $112.7 billion) in tax revenue in 2017, up 16.8 percent from tax revenue realization of IDR 1,283.6 trillion in 2016. Meanwhile, in its latest Indonesia Economic Quarterly, released earlier this week, the World Bank stated that the 2017 State Budget of Indonesia is a more realistic one (compared to tax revenue targets in recent years). However, it emphasized further tax administration and policy reforms are required to meet the new target and to further improve fiscal policy credibility.

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US multinational technology company Google failed to reach a tax settlement with Indonesia's Tax Office in 2016 and therefore directors of Google Indonesia could risk a prison visit. In September 2016 Muhammad Hanif, Head of the Tax Office's Special Cases Department, said Google could face claims for five years of back taxes, including a bill of more than USD $418 million for full-year 2015 as the company is estimated to have paid less than 0.1 percent of the total income and value-added taxes it owed Indonesia in 2015. In Indonesia, Google generates income from online advertisement.

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The second phase of Indonesia's tax amnesty program ended on 31 December 2016 and therefore it is interesting to take a look at the results during this phase. In short, results are mixed. We had already reported that in terms of asset declarations, the initial target of the program was already achieved a couple of weeks ago. However, in terms of asset repatriations (into Indonesia), the program has disappointed so far, and, unless the government will introduce new policies or incentives, will not achieve the target.

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Indonesia's Constitutional Court declared the government's tax amnesty program as "constitutional". In July 2016 a group of legal activists had filed for a judicial review of the central government's tax amnesty program on claims that the program would turn money laundering into a legal practice, would protect criminals, would teach Indonesian citizens not to pay taxes, and would generally constitute an unfair program from a social point of view. The court rejected these arguments.

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The last time Indonesia's tax revenue realization achieved the government's target was in 2008. In the following 8 years, a widening tax shortfall occurred as the government's tax revenue target rose more rapidly compared to tax revenue realization. In the 2017 State Budget Indonesia targets to collect IDR 1,498.9 trillion (approx. USD $111 billion) in tax revenue, while - based on the historic trend - tax revenue realization may only reach IDR 1,200 - 1,300 trillion, implying another big shortfall.

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In an attempt to attract investment in geothermal exploration in Indonesia, the central government decided to remove a land tax for companies that explore geothermal energy resources through a new decree. In 2017 this land tax will be scrapped for all companies that hold a geothermal business permit and are still in the exploration stage. According to information released on the website of Indonesia's Finance Ministry companies are entitled to a 100 percent tax reduction in land tax each year, for up to seven years.

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People familiar to the matter claim that US multinational technology firm Google will reach a tax settlement with the Indonesian government. Authorities in Indonesia have become increasingly uncomfortable with multinational companies that generate profit from an Indonesian online audience but lack a permanent presence in Indonesia in the form of a foreign investment company. This applies to various social media platforms as well as Google that only has a representative office in Indonesia, while transactions and revenue (generated in Indonesia) are booked at Google Inc's Asia Pacific headquarters in Singapore.

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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.

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Turnover in the packaging industry of Indonesia stood at around IDR 50 trillion (approx. USD $3.8 billion) in the first three quarters of 2016, flat from turnover generated in the same period one year earlier. Ariana Susanti, Director of Business Development at the Indonesian Packaging Federation (FPI), said turnover in the industry grew in Q1-2016 but was under pressure in the following two quarters. Overall, the situation is still better in 2016 compared to 2015 when - amid sliding economic growth and bleak purchasing power - turnover fell.

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Although realization of most components in Indonesia's state budget have improved in 2017, tax revenue realization and the management of energy subsidies remain the two big challenges for the Indonesian government. Southeast Asia's largest economy again failed to meet its tax revenue target last year. Per 31 December 2017 it collected IDR 1,151.5 trillion (approx. USD $85.3 billion) in tax revenue, only 89.74 percent of the target (excluding customs and excise).

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Indonesia may see a IDR 120 trillion (approx. USD $8.8 billion) tax shortfall in 2017. The Indonesian government set a IDR 1,472.7 trillion (approx. USD $109 billion) tax revenue target (including customs and duties) in full-year 2017. However, up to 15 December only IDR 1,211.5 trillion has been collected. Traditionally Indonesia delivers a tax shortfall at the end of the year. This is expected to continue in 2018.

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Every year Indonesia's Tax Office adjusts the excise tax on tobacco products. The adjustment is always made in consideration of the central government's tax revenue targets as well as the input of specific stakeholders (including pro-health lobby groups, or groups that defend the interests of tobacco manufacturers or farmers).

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Although the amount remains a secret, the government of Indonesia and Alphabet's Google finally managed to reach an agreement on the tax settlement after a long dispute that started in mid-2016. The news was confirmed by Indonesian Finance Ministry Sri Mulyani Indrawati. The dispute started because Indonesian authorities felt the so-called "over-the-top content" giants, referring to those companies that deliver content through Internet, deliberately did not set up permanent establishments in Indonesia in order to avoid taxes. Besides Google, other examples are Yahoo, Facebook and Twitter.

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The government of Indonesia listened to the criticism that emerged after it decided to set a rather low threshold for bank accounts that are to become subject to the automatic bank information exchange program. Through Finance Ministry regulation PMK No. 70/PMK.03/2017 Indonesia's tax authorities obtain access to information on accounts held at financial institutions, including bank accounts. This new regulation makes it possible to check whether tax payers indeed fulfill their tax obligations.

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There exists some resistance against the Indonesian government's recently announced regulation that gives tax authorities access to information on accounts held at financial institutions, including bank accounts. The regulation aims to contribute to a more transparent financial system as well as to boost the government's tax revenue realization (tax evaders will need to be more careful now authorities can monitor private and corporate bank accounts).

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Indonesia's Tax Office now has more power to check whether people and companies indeed pay taxes. Last week the Indonesian government basically scrapped the existence of banking data secrecy by introducing a new regulation that gives the nation's tax authorities access to information on accounts held at financial institutions, including bank accounts. The new regulation should contribute to a more transparent financial system and boost the government's (much-need) tax revenue realization. However, Indonesian parliament still needs to approve the new regulation.

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Indonesia's tax amnesty program ended on 31 March 2017, so now it is time to take a look at the results. Although Indonesia's amnesty program has been labelled as one of the most - if not the most - successful amnesty programs ever around the globe (in terms of asset declarations), there is plenty of room for disappointment. Based on data from Indonesia's Tax Office, less than one million Indonesians joined the program. For many nations this would be a great number. For Indonesia this number means tax evasion remains rampant, implying the government misses out on much-needed tax revenue.

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Indonesia's tax amnesty program will end soon. The nine-month program was designed to finish on 31 March 2017. Although the program has become the world's most successful tax amnesty program, it will fail to solve Indonesia's tax revenue collection problems. And with tax revenue being the largest source for public spending capacity, low tax compliance in Southeast Asia's largest economy obstructs more rapid development of the Indonesian economy.

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Indonesia's budget deficit in 2016 is estimated to have reached 2.46 percent of the nation's gross domestic product (GDP), below the government's forecast of 2.7 percent of GDP and at a safe distance from the legal cap of 3.0 percent of GDP that is stipulated by Indonesian law. This is a positive matter that is supported by modestly growing tax revenue. In full-year 2016 tax revenue realization reached IDR 1,105.2 trillion (approx. USD $83 billion), only 81.6 percent of the target that was set in the Revised 2016 State Budget (APBN-P 2016) but slightly higher than tax revenue realization in the preceding year.

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