Wealthy Indonesians Line Up for Tax Amnesty After Slow StartBy
Number of people signing up for amnesty more than doubles
Inflows still well below government’s initial revenue target
Rich Indonesians are starting to embrace a tax amnesty program that President Joko Widodo sees as a key revenue source for his spending plans, though inflows are still far from the government’s initial target.
After a slow start, the number of people and institutions signing up for the amnesty more than doubled from last week to 329,510 as the first deadline carrying the lowest penalty rate approached on Friday. The value of assets declared surged to 3,540 trillion rupiah ($259 billion) from 97 trillion rupiah at the end of August, according to a tally on the Finance Ministry’s website at 8:03 p.m. local time.
“I see this as a symbol of trust that people in the business sector have in the government,” Widodo, known as Jokowi, told reporters Friday in the capital, Jakarta. “We will use the trust that the people have given us to reform our taxation.”
What began as a trickle has turned into a flood as rich Indonesians, from businessmen to the son of the former dictator Suharto, lined up to participate in the program. Yet, inflows are still far below the government’s initial targets and results from the first stage show taxpayers have little appetite to bring their assets home.
“Do we expect this pace to continue for the next half a year, meaning the fourth quarter, and the first quarter next year? That’s unlikely,” said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp. in Singapore. “The bulk of the amnesty filing will be indeed this month.”
The government earned 97.1 trillion rupiah in revenue so far from the amnesty, about 59 percent of its initial goal of 165 trillion rupiah -- though that target no longer appears on the dashboard on the Finance Ministry’s website. The figures will keep rising until midnight as officials continue to process the submissions, Jokowi said, while declining to comment on any plans to revise the target when asked at the press conference.
“It seemed incredibly ambitious at the time and it’s been shown out that this is not going to raise anywhere near the amount of money that they hoped it would,” said Gareth Leather, senior Asia economist at Capital Economics Ltd. in London. “If you’re a rich Indonesian businessman with money abroad, it’s a bit like a turkey voting for Christmas in a way.”
Jokowi has been banking on the amnesty to help finance billions of dollars in infrastructure projects as Southeast Asia’s biggest economy struggles in the face of weak commodity prices and sluggish consumer demand. Finance Minister Sri Mulyani Indrawati said on Sept. 27 the economy will probably grow about 5 percent this year, compared with last year’s expansion of 4.8 percent, the slowest pace since 2009.
“Wherever they put their money, we will chase them,” she said in Jakarta late Friday. “We will seek political, economic support from other nations in reforming our tax revenue.”
People began lining up outside the Central Jakarta tax office from 4 a.m. on Friday, with the queue reaching 500 after three hours, local news website Detik reported. Anthoni Salim, the Indonesian billionaire who owns stakes in instant-noodle maker PT Indofood Sukses Makmur through his investment company, submitted an amnesty application today, while Aburizal Bakrie, the former chairman of political party Golkar, added his earlier this week.
On Thursday, thousands of workers rallied in front of the Presidential Palace in Jakarta to protest against the amnesty, claiming it unfairly favored the wealthy by allowing them to get away with not paying the proper amount of tax.
About two-thirds of the funds declared come from onshore sources, according to data from the tax office. The bulk of the 1,075 trillion rupiah in assets held abroad looks set to remain overseas in places like Singapore, the Cayman Islands, Hong Kong, the Virgin Islands and Australia, with only about 14 percent of that amount being repatriated.
“If you look around you in Singapore, it was probably unreasonable to expect someone to move a Singapore apartment and repatriate the apartment down to Jakarta right?” said Aditya Srinath, an analyst at JPMorgan Chase & Co. “So, it does make some logical sense” that repatriation of assets was not greater, he said.
Penalty rates applied under the amnesty, which kicked off mid-July, will climb from 2 percent to 4 percent in the first phase to between 3 percent and 6 percent over the second stage that ends in December. The rates then climb as high as 10 percent in the final three-month period which ends in March.