Indonesia Budget at Risk as Lawmakers Link Tax, Anti-Graft Laws

  • Lawmakers are holding up government's tax amnesty plans
  • Some lawmakers seek bill that could weaken anti-graft agency

Indonesian lawmakers seeking to curb the powers of the country’s anti-graft agency are holding up the passage of a tax amnesty bill the government says is vital for this year’s spending plans.

The government has been resisting attempts to tamper with the agency, known as the KPK, while trying to get the amnesty bill passed this quarter. Legislators have now delayed deliberations on the amnesty bill, and some say its fate is linked to the government agreeing to a revised law that would limit the reach of the KPK.

That presents a problem for President Joko Widodo, better known as Jokowi, in his attempts to boost government spending to shore up an economy that grew at its slowest pace last year since 2009. Allowing the KPK bill to pass in its current form risks weakening the front line of Indonesia’s anti-corruption battle and delivering another blow to his pre-election image as a democratic reformer.

“Some of the political powers see both laws as ‘one packet’,” said Johnny Plate, a lawmaker from the ruling coalition who sits on parliament’s finance commission and supports the tax amnesty. “So if one is delayed, the other is delayed.”

KPK’s Probes

Investigations by the KPK, which was created in 2002 to take over the fight against corruption from the police, have led to convictions against scores of high-ranking government officials. Since its inception the KPK has arrested 101 national or regional lawmakers out of a total of 518 suspects, according to data on its website. In 2015, 19 legislators were arrested, more than in any other category provided by the agency.

In a recent opinion poll by Indikator Politik, 80 percent of respondents rated it the most-trusted institution compared to 40 percent who chose political parties. Indikator Politik conducted interviews with 1,550 people.

The revision to the KPK law as proposed by lawmakers from several parties, including Jokowi’s ruling party, would limit its wiretapping abilities and establish an advisory body overseeing it. Critics say the changes would make the body less effective.

“We know better than the people who are demonstrating against this,” said Firman Subagyo, a ruling coalition lawmaker who is supporting the changes to the KPK. “The wiretapping moves of the KPK have to be controlled. It has made mistakes in the past.”

Own Party

Political parties that have expressed support for Jokowi have a majority in parliament. But as the delay to the tax amnesty has shown, that doesn’t mean he can rely on them to back his agenda. Lawmakers from the Indonesian Democratic Party of Struggle, led by former President Megawati Soekarnoputri, which nominated him for president and of which he is a member, are the most vocal in supporting the revisions to the KPK.

“The KPK has emerged as a serious threat to political parties, which along with tycoons and the bureaucracy are behind state capture and corruption in Indonesia,” said Dadang Trisasongko, secretary general of Transparency International Indonesia. “Now things depend on the president. There will be a cost in rejecting the revisions, but he can hide behind public opinion if he is smart.”

Most Critical

In a recent address to government officials, Finance Minister Bambang Brodjonegoro called the proposed tax amnesty the most critical government policy this year. Under the bill, Indonesians can declare assets at home and abroad and benefit from tax rates as low as 2 percent. The government is targeting at least 60 trillion rupiah in extra revenue -- around one fifth of what it spent on infrastructure last year -- and has delayed issuing this year’s revised budget until the law is passed.

Hendrawan Supratikno, a ruling PDI-P lawmaker supporting the KPK revision, said he thought the legislature would now consider the tax amnesty bill in the second half of the year. 

“Both bills need more consideration,” he said, referring to the tax and KPK laws. “Why the sudden hurry?”

Brodjonegoro told Bloomberg Television in an interview last week he hoped parliament would pass the amnesty bill “in the next two months.”

“The longer the deliberation process drags on, the higher the chance of it not going through as the government hopes to,” said Wellian Wiranto, an economist in Singapore at Oversea-Chinese Banking Corp. “Essentially the parliament may be holding the tax amnesty law hostage.”

The Indikator Politik poll showed that only 20 percent of Indonesians were following news around the KPK revisions, but those that were saw it as an attempt to weaken the body.

“Increasingly the parliament is perceived as being uniquely self-serving so Jokowi needs to be careful of cutting the wrong kind of deal,” said Paul Rowland, an independent Jakarta-based political consultant. “If one of the few bills it succeeds in passing this year ‎is one that attacks the KPK, an institution that has jailed many elected officials, citizens will only become more cynical.”

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