Indonesia introduces tax amnesty to boost economy

Jakarta / Agencies

Indonesia’s parliament on Tuesday passed a tax amnesty bill in a bid to give Southeast Asia’s top economy a multi-billion-dollar boost, defying criticism the move will let evaders off the hook.
The government believes the amnesty can bring in 165 trillion rupiah ($12.4 billion) of additional revenue this year by offering low rates to those who come forward to declare untaxed wealth.
Wealthy Indonesians have long chosen to stash billions of dollars abroad, particularly in neighbouring city-state Singapore, to keep it out of reach of the taxman.
All but one of the 10 political parties in the legislature backed the controversial measure, which has been repeatedly delayed due to months of wrangling between lawmakers.
“With this tax amnesty law, we hope to attract overseas capital belonging to Indonesians,” Finance Minister Bambang Brodjonegoro told parliament after the bill passed.
Repatriated capital would “enter Indonesia’s financial system and boost economic growth”, he added.
President Joko Widodo is desperate for extra money to fund infrastructure projects as investment falls due to a slowing global economy, and the government believes improving its historically poor tax revenues will help.
Only 30 million Indonesians are registered taxpayers out of 90 million registered workers, and the country collects less tax as a proportion of GDP than many countries in Southeast Asia.
But the bill has faced criticism from political parties and among the public who believe it means people who have evaded tax will go unpunished, and that it is unfair to those who have honestly paid their taxes.
“The tax amnesty bill is extraordinarily offensive to our sense of justice — it turns criminals into good guys,” lawmaker Yandri Susanto of National Mandate Party told parliament.
His party eventually backed the bill. The Prosperous Justice Party, an Islamist party, was the only one in parliament that did not support the measure.
People who come forward with their untaxed wealth at home and abroad will be offered a rate of between two percent and 10 percent, far below the 30 percent top income tax rate for individuals.
Under the amnesty, those wishing to declare their untaxed wealth will have until March 2017 to do so. An individual can get better rates by reporting earlier, and by agreeing to send their money back to Indonesia.

Indonesian Rupiah, Stocks Lead Asian Gains
Indonesia’s rupiah strengthened the most in three weeks and the Jakarta Composite Index led gains among emerging Asian bourses as a tax amnesty bill to boost government revenue was passed.
Lawmakers voted in favour of the bill during a plenary session in Jakarta on Tuesday. Bank Indonesia estimates the tax reprieve will lure as much as 560 trillion rupiah ($43 billion) of undeclared income from overseas. PT Manulife Aset Manajemen Indonesia Chief Investment Officer Alvin Pattisahusiwa said this month the amnesty would boost the bond market and should also support the shares of property developers.
The rupiah closed up 1.2 percent, the biggest gain since June 6, at 13,178 a dollar, according to prices from local banks. The currency reached 13,160 earlier, the strongest level since April 21. The Jakarta Composite Index of shares rose 1 percent in the biggest advance since May 25. Sovereign bonds rallied, pushing the 10-year yield down six basis points to 7.61 percent.
“One of the catalysts for the rupiah is the tax amnesty agreement,” said David Sumual, chief economist at PT Bank Central Asia in Jakarta. It will decrease fiscal risk and improve government revenue, he said before the bill was passed.

‘Great Expectations’
Large-cap companies rallied on Tuesday after the amnesty bill was passed, but banks and property companies should be the biggest beneficiaries in the medium to long term, said Indra Mawira, an investment manager at Panin Asset
Management.