Delayed Tax Amnesty Bill Talks Impact on Indonesia's Tax Target
After it was decided to postpone talks between the Indonesian government and the House of Representatives (DPR) about the tax amnesty bill (talks have been postponed until April 2016), the government is in need of formulating a new tax revenue target as the late implementation of the tax amnesty program could mean the government will miss out on tens of trillions of rupiah (billions of US dollars) in tax revenue this year. Indonesia's tax amnesty bill, proposed last year, will make it easier for tax evaders to come clean and repatriate their funds into Indonesia.
Indonesian Vice President Jusuf Kalla acknowledged that the government needs to revise its 2016 tax revenue target in order to remain realistic after the DPR delayed discussions regarding the tax amnesty bill until at least April 2016. Earlier, Indonesia's Finance Ministry estimated that the tax amnesty bill would bring in additional tax revenue worth around USD $4.4 billion this year.
The government targets to collect IDR 1,546.7 trillion (approx. USD $115 billion) in tax revenue in full-year 2016 (this target has been set in the 2016 State Budget and includes income from customs and excise). However, it is expected that this target will be adjusted in the Revised 2016 State Budget (APBN-P 2016).
Meanwhile, Indonesia's Chief Economics Minister Darmin Nasution said the government may decide to cut on spending in 2016 and become more efficient in order to avoid a major widening budget deficit. The government targets a budget deficit of 2.15 percent of the country's gross domestic product (GDP) this year, down from a deficit of 2.53 percent of GDP last year. another possibility would be widening the 2016 budget deficit target. Nasution added that he is not convinced a tax amnesty bill would indeed manage to boost Indonesia's tax income by tens of trillions of rupiah. Firstly, the government cannot force tax evaders to use this tax incentive. Secondly, he feels there is low awareness of this tax amnesty bill and therefore additional tax income may be limited.
Indonesia's tax amnesty bill, originally planned to be implemented in early 2016, offers low tax rates to those who declare untaxed wealth.
If the Indonesian government decides to cut spending in order to anticipate lower-than-estimated tax revenue in 2016, then there automatically emerges concern about the country's GDP growth. The key reason why economic growth of Indonesia accelerated in the last quarter of 2015 was government spending. In Q4-2015 GDP growth accelerated 5.04 percent (y/y), a figure warmly welcomed by investors and analysts. It gives rise to hopes that the sustained period of economic slowdown (that started in 2011) has ended for Indonesia. In 2016 domestic and international institutions (including the World Bank and IMF) see a 5.3 percent (y/y) growth rate for Indonesia.