On Tuesday 20 November markets are closed for a public holiday
19 November 2018 (closed)
USD/IDR (14,586) +0.00 +0.00%
EUR/IDR (16,643) +0.00 +0.00%
Jakarta Composite Index (6,005.30) -7.05 -0.12%
Indonesia's tax amnesty program ended on 31 March 2017, so now it is time to take a look at the results. Although Indonesia's amnesty program has been labelled as one of the most - if not the most - successful amnesty programs ever around the globe (in terms of asset declarations), there is plenty of room for disappointment. Based on data from Indonesia's Tax Office, less than one million Indonesians joined the program. For many nations this would be a great number. For Indonesia this number means tax evasion remains rampant, implying the government misses out on much-needed tax revenue.
A total of 965,983 people joined Indonesia's ambitious tax amnesty program that ran between July 2016 and 31 March 2017 (while less than 200,000 participants out of this total are "brand new" taxpayers, meaning they have never filed annual tax returns before, the remainder are registered taxpayers who had failed to declare all their assets). However, considering only about 35 million Indonesians - out of an adult population that numbers more than 165 million people - are registered taxpayers, there is a huge pool of people who fail to fulfill their tax obligations. Moreover, being a registered taxpayer does not mean they actually fulfill their tax obligations. It is estimated only a mere 12 million Indonesians pay their annual taxes in line with their incomes and assets.
Indonesian Finance Minister Sri Muyani Indrawati responded to the tax amnesty results as follows: "I find the number of participants in the amnesty program small - both regarding taxable objects in the nation's small and medium sized enterprises (SMEs) sector and non-SMEs sector. Hence, too many people have not joined the amnesty program."
So what are the results, money-wise? A total of IDR 4,865.7 trillion (approx. USD $366 billion) worth of assets have been declared to Indonesia's Tax Office under the program, surpassing the government's target (set at IDR 4,000.0 trillion). The figure equals nearly 40 percent of Indonesia's gross domestic product (GDP). About 75 percent of these funds involve assets that were stashed domestically, the remainder are assets that were secretly stored abroad (mostly in Singapore). This result was positive, although one could claim that the government set its target too low.
In terms of asset repatriations, the program was disappointing. Only IDR 147 trillion worth of assets were repatriated into the specific investment instruments that were prepared by Indonesian authorities (the government's target was set at IDR 1,000.0 trillion). Again, Singapore accounted for the largest part of declared and repatriated funds by Indonesians under the tax amnesty program. Nearly IDR 85 trillion of fund repatriations originated from Singapore. However, it is estimated Indonesians keep about IDR 2,600 trillion worth of assets in Singapore (around IDR 650 trillion of which are in "non-investable assets", such as property). Most of these repatriated assets went to onshore deposit accounts, bonds and wealth management funds. Reluctance of Indonesians to repatriate their wealth to Indonesia indicates that Indonesia is not attractive enough. This can be related to Indonesia's relatively high tax tariffs (compared to tariffs in tax havens) and perhaps some people are still traumatized by the Asian Financial Crisis and therefore prefer to keep assets abroad.
It is believed many of those who joined the amnesty program did so out of concern being caught in 2018 when the Organization for Economic Co-operation and Development's (OECD) Automatic Exchange of Information initiative is implemented. This will make it easier for tax authorities to access data regarding overseas assets.
In terms of redemption payments the Indonesian government collected IDR 114 trillion, below its target of IDR 165 trillion, but it will somewhat help to plug a yawning gap in the government's projected tax revenue.
Tax Amnesty Program Indonesia - Score So Far:
(in IDR trillion)
|Per 31 Mar '17
(in IDR trillion)
|Declaration of Funds||4,000.0||4,865.7||121.6%|
|Repatriation of Funds||1,000.0||147.0||14.7%|
But there is positive news. Many of Indonesia's corporate elite joined the program, declaring their previously undeclared assets stored abroad in the so-called tax havens or at home, and this means a significant amount of wealth has been declared because it is the top that controls the nation's wealth. Based on the seventh Global Wealth Report, made by Credit Suisse Research Institute, the top 1 percent of Indonesian society controls about half of the country's wealth (indicating a high degree of income distribution inequality).
With the tax amnesty program Indonesia's tax revenue may grow up to 10 percent (year-on-year) in 2017. Without the program tax revenue growth may only have been 7 percent (y/y). Indonesian authorities will now study the results of the tax amnesty program and determine the next steps for the reformation of Indonesia's tax sector. Indonesia's tax-to-GDP ratio is currently at a very low 11 percent. Authorities want to raise this figure to 15 percent in the next couple of years. However, this will require some serious reformation.
It is also important for the government to set a good example and limit scandalous corruption cases. For example, the ongoing trial of an alleged graft case related to the introduction of the electronic identity card (e-KTP) in Indonesia comes at a problematic time. This project caused IDR 2.3 trillion in state losses and prosecutors have mentioned names of figures with strong political influences in Indonesia. Indonesians will not be enthusiastically fulfilling their tax obligations when media are frequently reporting about government funds that go missing in government projects (about 75 percent of state funds originate from taxation).