Indonesia: Tax Amnesty Missed Some Goals but Could Mean More Future Revenue

While Indonesia’s recently concluded tax amnesty program fell short of goals for previously uncollected revenue, analysts said it could help improve future collections and eventually increase the tax ratio to the country’s gross domestic product.

Responding to the government’s effort to stimulate the economy through the one-time nine-month program that ended in March, Indonesian citizens declared 4,881 trillion rupiah (U.S. $368 billion) in previously unreported assets.

Those filers paid 135 trillion rupiah ($10 billion) in penalties, assessed at from 2 percent to 5 percent, depending on when they signed up.

Finance Minister Sri Mulyani said money collected through the program would be used to boost and develop the economy.

“Infrastructure, schools, hospitals, assist small medium enterprises, eradicate poverty in villages and border areas,” she said on the last day of the amnesty, which expired March 31.

Others expressed similar support.

“Tax amnesty doesn’t only help to generate some revenues but also to introduce broader reforms on tax collection,” Winfried Wicklein, the Asian Development Bank’s country director for Indonesia, told reporters earlier this month.

Some marks missed

The amnesty program fell short in some of the key components sought by the government when it was rolled out in July 2016 after lawmakers approved it one month earlier. For one, only about 972,000 Indonesians participated – less than half of the expected 2 million.

In addition, regarding the previously unreported assets, claimants promised to repatriate 147 trillion rupiah ($11 billion) into Indonesian accounts, of which, only 121.3 trillion rupiah ($9.1 billion) were returned as of the end of March. The program required those funds be kept in Indonesian banks or invested in bonds for three years.

“We consider it a failure, given that 147 trillion rupiah is very low compared to the potential funds for repatriation or the government target,” Eko Listiyanto, a researcher at Jakarta-based think tank Institute for Development of Economics and Finance (Indef), told BenarNews.

The government had targeted repatriations to total 1,000 trillion rupiah ($75 billion) of an estimated 11,000 trillion rupiah ($829 billion) potentially available to be returned to the nation of 255 million people.

As part of reforming taxes, the government needs to establish regulations on penalties for those found to be stashing their wealth abroad, said Ahmad Heri Firdaus, a fellow economics researcher at Indef.

Such regulations are necessary because Indonesia next year plans to join the Automatic Exchange of Information (AEoI) at the intergovernmental Organization for Economic Cooperation and Development’s (OECD). The exchange requires Indonesia’s tax office to have automatic access to taxpayers’ information at local financial markets so it can share data on foreign taxpayers with their countries of origin.

“But it may not be so easy to find the data since Indonesia and other jurisdictions should have an agreement first to exchange the information on reciprocal basis,” Ahmad told BenarNews.

About 100 countries have already committed to AEoI and Indonesia is one of nearly 50 more committed to joining the exchange in 2018, according to the OECD.

Ratios

At 11 percent, Indonesia has one of the lowest tax-to-GDP ratios in Southeast Asia and emerging economies, according to data from the International Monetary Fund and World Bank.

By comparison, Malaysia is at 15 percent, Thailand is about 17 percent and OECD countries average 30 percent to 35 percent, according data from the Indonesia Economic Quarterly Report released in March.

“We aim to increase our tax ratio to 14 percent or 15 percent by 2020,” Hestu Yoga Saksama, a spokesman for the Directorate General of Taxation at the Finance Ministry, told BenarNews.

Issues

One area of concern is the number of registered taxpayers compared with the number who file taxes. Indonesia, which has a workforce of more than 125 million people, has 36 million registered taxpayers. About 22 million are obligated to file tax returns by April 21, an extension from the previous March 31 deadline.

The government seeks to generate 1,498 trillion rupiah ($113 billion) from taxes of the 1,750 trillion rupiah ($132 billion) in total government revenue allocated in its 2017 budget.

“With the extended deadline, we expect to have around 17 million taxpayers submitting their tax returns,” Hestu said.

The amnesty program could improve collections in the future because it registered more than 52,000 new taxpayers.

“If all taxpayers comply, the government will have bigger fiscal capability to spend on programs to eradicate poverty, reduce inequality and increase infrastructure construction, which will boost our economic growth,” Hestu said.

Philippine officials plan to emulate Indonesia’s program to go after tax evaders, Finance Secretary Carlos Dominguez told Bloomberg Television earlier this month.

“We will design a tax amnesty program, most likely similar to the one that Ibu Sri Mulyani has designed,” he said.