Indonesia’s Tax Amnesty Bill Moves Closer to Becoming Law

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  • Lawmakers debating bill after finance commission approved it
  • Central bank says tax amnesty can draw 560 trillion rupiah

Indonesia moved closer to adopting a tax amnesty that the government says will draw in billions of dollars needed to finance its budget and boost economic growth.

Lawmakers began debating a bill that was approved by parliament’s finance commission on Monday, among the final steps before it becomes law. If approved, the government will impose a rate of 2 percent to 5 percent on undeclared funds held abroad that are repatriated.

President Joko Widodo is banking on the tax amnesty to help plug a widening budget deficit and enable Southeast Asia’s largest economy to win a long-awaited upgrade from S&P Global Ratings. The central bank forecasts the tax plan will help draw 560 trillion rupiah ($41.8 billion) of funds back to the country and earn the government 53 trillion rupiah of revenue that may add 0.3 percentage point to economic growth.

The amnesty bill sets a penalty of 4 percent to 10 percent on individuals who report assets held abroad but decline to repatriate the funds. Participants must keep the funds onshore for three years.

Business Incentive

“The bill’s approval looks like a done deal, but the program itself remains a big gamble,” said David Sumual, chief economist at PT Bank Central Asia. “The finance ministry needs to ensure high participation is met by systems and human resources ready to process the claims, then make sure the revenue is quickly spent to support growth.”

The latest version of the draft law includes an incentive for small businesses. Companies that earned up to 4.8 billion rupiah of gross income in the latest tax year can declare up to 10 billion rupiah of assets by only paying a 0.5 percent redemption rate, while those reporting more than 10 billion rupiah must pay 2 percent.

The bill is also a test of political support for Widodo. His administration earned a majority in parliament when Golkar, the second-largest party, left the opposition to formally support him in May. A majority of parties at the finance commission agreed to approve the bill, while adding lengthy disclaimers to their decisions.

“Empirically, the success rate is minimal and countries that do this are seeking to plug shortfalls,” Kardaya Warnika, lawmaker for Gerindra party, which stands in opposition to Widodo’s government, said at the commission meeting. “If the country isn’t in a revenue crisis, then Gerindra would reject this bill, but because the country is in a crisis, then Gerindra accepts.”