Indonesian Tax Amnesty Program Struggling in Early Going

Arie Firdaus
2016.08.26
Jakarta
160826-ID-tax-620.jpeg A pedestrian walks past the head office of Indonesia’s Tax office, in Jakarta, Jan. 20, 2011.
AFP

An Indonesian program that offers tax dodgers an amnesty and hopes to lure wealthy citizens into repatriating billions in assets held overseas is lagging far behind its target of collecting more than U.S. $12 billion by March 2017, officials acknowledge.

Since the government launched the eight-month amnesty program in mid-July, only about 7,000 taxpayers have paid 1.18 trillion rupiah (U.S. $89 million) – or 0.7 percent of the 165 trillion rupiah (U.S. $12.5 billion) in tax targeted for collection through next March – according to figures released Thursday on the website of the Finance Ministry’s Directorate General of Taxes.

A Tax Amnesty Law passed by the House of Representatives on June 28 cleared the way for the government to offer a time-limited amnesty to tax dodgers, by encouraging them to bring back their assets from abroad through the incentive of paying a very low tax rate.

Under the program, those who enroll before September pay a tax rate of 2 percent.  The tax increases to 3 percent for those who enroll from October through December, to 5 percent for those who enroll from January through March 2017, according to reports. The catch is that the repatriated money must be kept in Indonesia for three years, and held in banks or invested in bonds.

Indonesian officials have touted the program as a way to bring in revenue needed to shore up the tax base, help stimulate a sluggish economy, and bring down a fiscal deficit.

The government is hoping the program will repatriate more than U.S. $70 billion in assets held by Indonesians overseas, Reuters reported. According to The Economist, the overall wealth invested by Indonesians abroad is believed to be much higher – a staggering U.S. $900 billion.

But so far, relatively few tax dodgers have signed up for the amnesty, officials have conceded.

“This is quite worrisome,” tax analyst Yustinus Prastowo told BenarNews. “It was expected that many citizens would participate in the first period when the penalty is still low.”

Taxation Director General Ken Dwijugiasteadi did not respond to several requests for comment from BenarNews, but acknowledged that the program was not going smoothly, according to Metrotvnews.com.

He said he was baffled by the low response in contrast to the 20,000 people who attended government-sponsored events in several cities that promoted the program and was championed by President Joko “Jokowi” Widodo. About 12,000 of those people have not yet enrolled for amnesty.

“The government is not focusing on potential taxpayers,” Yustinus said, referring to wealthy citizens who have parked their assets abroad.

Joshua Pardede, an economist at Bank Permata, agreed, saying the amount collected so far was insignificant.

This stark lack of a people signing up for the program may lead to the government having to cut spending because not enough money is coming in, he warned.

“This is because the impact of tax amnesty has yet to materialize,” he said.

Several ministries were forced to cut their budgets this year because of the lack of funding, government officials said.

The government’s effort to persuade wealthy citizens to repatriate their money is complicated by the fact that neighboring Singapore – where many rich Indonesians keep their assets – is trying to block it through persuading them to not withdraw those from the city-state. Singapore has offered to waive a 4 percent declaration fee for Indonesians who keep their assets there, according to reports.

Heaven or hell?

Meanwhile, Indonesia’s newly installed finance minister, Sri Mulyani Indrawati, has warned that she would go after dodgers after the amnesty program expires at the end of March, and it was in their interest to take advantage of the opportunity now.

“Basically, it’s a choice between heaven and hell,” Sri Mulyani told journalists. “Now there is a chance to go to heaven, with only 2 percent penalty and pardoned sins.”

A former World Bank director who previously served as finance minister from 2005 to 2010, she was re-appointed in that role last month by Jokowi.

“If you’re not using the opportunity this time, I'm not going to play around,” she added, according to Reuters.

POST A COMMENT

Add your comment by filling out the form below in plain text. Comments are approved by a moderator and can be edited in accordance with RFAs Terms of Use. Comments will not appear in real time. RFA is not responsible for the content of the postings. Please, be respectful of others' point of view and stick to the facts.