According to a recent survey of Schroder Investment Management Indonesia, subsidiary of the British multinational asset management firm and a leading independent international asset management and private banking group, Indonesian investors feel more confident to invest in Indonesia in 2014. Director of Schroder Indonesia Michael Tjoajadi stated that confidence of Indonesian investors has increased due to improving economic conditions and the long-term prospects of Southeast Asia's largest economy.

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On Sunday (23/02), the first G20 Finance Ministers and Central Bank Governors Meeting was concluded. In a statement, the finance ministers and central bank governors committed to implement policies to grow collective GDP by over 2 percent above the current trajectory over the next five years. Realistically, these policies could mean an extra USD $2 trillion in global economic activity and tens of millions of additional jobs. Each country will deliver a comprehensive growth strategy as part of the Brisbane Leaders Summit in November.

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On Monday (09/12), the government of Indonesia outlined the long-awaited extension of its economic policy package that was released in August 2013. This extension involves new fiscal policies, aimed at reducing imports and supporting exports, that will be implemented at the start of 2014. An improving global economy in combination with the government's August package and yesterday's extension package is expected to reduce Indonesia's wide current account deficit to a sustainable level of below 3 percent of gross domestic product (GDP).

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In order to improve the country's trade balance (particularly to curb the large current account deficit), the government of Indonesia will raise income tax on imported products through the issuance of a new ministerial regulation (issued by the Finance Ministry). Currently, there are two income tax tariffs on imported goods (see below). According to Finance Minister Chatib Basri, goods that will fall under the new regulation are consumption goods (except for food products). The new income tax tariff is expected to be implemented next week.

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Real Estate Indonesia (REI) advises the Indonesian government to open up the country's property sector to foreign ownership as this is considered to benefit the Indonesian economy through the collection of taxes and foreign exchange earnings. According to Teguh Kinarto, vice-chairman of the REI's Central Board, the state can gain a lot of revenues through taxes, such as the property tax of 10%, luxury tax of 20%, as well as various other taxes. Currently, foreigners can only buy the right to use property in Indonesia, not the right to own.

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The outcome of Indonesia's 2014 budget deficit is expected to be higher than initially planned in the 2014 State Budget Draft (RAPBN 2014). In the 2014 draft, the deficit is proposed to amount to IDR 154.2 trillion (USD $13.6 billion), or 1.49 percent of Indonesia's gross domestic product (GDP). However, the government's latest estimate indicates a widening of the deficit to IDR 209.5 trillion (USD $18.5 billion), equivalent to 2.02 percent of GDP. The wider deficit is mainly caused by Indonesia's depreciating rupiah as well as the weak global economy.

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The government of Indonesia will lower the export duties on crude palm oil (CPO) from 10.5 percent in August to 9 percent in September if the CPO price continues to stay between USD $800-850 per ton. This lower tax policy is done in order to stimulate export revenues amid persistent weak global commodity prices. The international palm oil market is expected to remain stagnant in August and September. Stockpiles of CPO in Malaysia and Indonesia are projected to rise between September and December 2013.

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Business players in Indonesia's property sector are not happy with the government's intention to collect more tax from the sector in 2014 and onwards. The property sector has been one of the fastest growing sectors in Indonesia's economy in recent years as demand for property has surged significantly among Indonesia's expanding middle class, resulting in massive profit numbers for Indonesian property companies. Meanwhile, the government of Indonesia has been busy taking efforts to increase tax revenues.

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Head of the Finance Ministry's fiscal agency Bambang Brodjonegoro said that the Indonesian government is preparing tax incentives to spur foreign investments. The new regulation will extend the previous expired one and also provides new incentives that make investing in Indonesia more attractive. One possible change concerns the minimum value of investments. Currently, investments between IDR 1 trillion - 20 trillion receive the same benefits. However, this may be revised in such a way that the bigger the investment, the better the incentives.

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In order to increase government revenues, the Indonesian government announced that, starting from 2014, coal miners that have a Mining Business License (Izin Usaha Pertambangan/IUP) will have to pay a higher royalty fee to the central government. The decision was made during a meeting between the government and Commission XI of the House of Representatives (DPR) this week. The new royalty policy, which was originally planned to be introduced this year, is expected to result in an increase of IDR 4 trillion (USD $408.2 million) in state revenues.

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After the Constitutional Court had already confirmed earlier this week that Indonesia's tax amnesty program is not in violation of the nation's constitution, there occurred a second reason for celebration related to the tax amnesty program: the total of declared assets up to Wednesday (14/12) had surpassed the government's target of IDR 4,000 trillion (approx. USD $301 billion), about 3.5 months before the end of the program. Despite this success there remains reason for pessimism.

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Indonesia's Communication and Information Ministry urges American multinational technology company Google to set up a permanent establishment in Indonesia. This way Google, which is owned by US multinational conglomerate Alphabet Inc, would need to start paying taxes to Indonesian authorities. Currently, Google only has a representative office in Indonesia, while transactions and revenue generated in Indonesia are booked at Google Inc's Asia Pacific headquarters located in Singapore.

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Indonesia's tax revenue realization in the first half of 2016 was disappointing. According to the latest data, Southeast Asia's largest economy collected a total of IDR 518.4 trillion (approx. USD $39.6 billion) worth of tax revenue (including customs and excise) in the first six months of 2016, down 3.3 percent (y/y) from tax revenue realization in the same period one year earlier, and only 33.7 percent of total targeted tax revenue (IDR 1,539.2 trillion) set in the revised 2016 State Budget. The disappointing performance is mainly due to weak tax income from the oil and gas sector.

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The government of Indonesia is preparing various investment instruments in order to absorb the (potentially large) inflow of capital following the launch of the tax amnesty program earlier this month. Besides government bonds, state-owned enterprises' bonds, real estate investment trusts (REITs), and property investment through private equity schemes (RDPTs), the government is also preparing trustees and zero coupon bonds. Without such investment instruments, bubbles are expected to appear due to the large inflow of funds into Indonesia's financial markets.

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Without giving too much insight into the details and regulations, Indonesian President Joko Widodo launched the tax amnesty program on Friday (01/07) during a speech in front of hundreds of businessmen and officials at Indonesia's tax office headquarters in Jakarta. The tax amnesty program - approved by the House of Representatives in late June - is a strategy to boost state tax income by (temporarily) granting amnesty as well as offering attractive incentives to (former) tax evaders. In return, the tax dodgers have to declare and (if wanted) repatriate their offshore assets into Indonesia.

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In a plenary session on Tuesday (28/06), Indonesia's House of Representatives (DPR) passed the controversial Tax Amnesty Bill into law as well as the revised 2016 state budget. The Indonesian government will be relieved to see the Tax Amnesty Bill come into effect on 1 July 2016 (ending in May 2017) as it expects the bill to boost tax revenue this year by IDR 165 trillion (approx. USD $12.4 billion). Through tax incentives and the pardoning of tax crimes, the tax amnesty program makes it attractive for tax evaders to declare their offshore assets and repatriate these into Indonesia.

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In the past two weeks, two of the big international credit rating agencies released new reports about Indonesia's fiscal situation. Both agencies affirmed Indonesia's sovereign debt rating: Fitch Ratings kept Indonesia at BBB-/stable (investment grade class) and Standard & Poor's (S&P) maintained Indonesia at BB+/positive (highest junk level, one notch below investment grade). S&P's decision to keep Indonesia within the junk level category was met with disappointment among investors and Indonesian government officials but perhaps not that surprisingly.

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The government of Indonesia proposes to cut the state revenue target by IDR 88 trillion (approx. USD $6.5 billion) in the Revised 2016 State Budget. Indonesian Finance Minister Bambang Brodjonegoro announced the government has sent the proposal to the House of Representatives’ Budget Committee (Banggar) on Thursday (02/06). Expectations of lower government revenue is the result of weaker-than-estimated tax collection, the lower-than-initially-assumed Indonesian crude oil price as well as the lower-than- estimated oil and gas production in Indonesia.

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So far this year, realization of government revenue in Indonesia (up to 8 May 2016) has reached IDR 419.2 trillion (approx. USD $32 billion), roughly 23 percent of the full-year revenue target in 2016 (IDR 1,822.5 trillion). This result is weaker compared to last year when the government collected IDR 476.3 trillion in the period 1 January - 15 May 2015, or 27 percent of the full-year target. Meanwhile, government spending reached IDR 586.8 trillion between 1 January and 8 May 2016, or 28 percent of the full-year target (IDR 2,095.7 trillion), roughly the same as government spending during the same period last year.

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More changes to Indonesia's tax system are in the pipeline. Today (11/04), Indonesia's Finance Minister Bambang Brodjonegoro said Southeast Asia's largest economy plans to cut the corporate income tax rate to 20 percent this year (from 25 percent currently). According to Brodjonegoro a 20 percent corporate tax rate is more competitive and will attract investment. Indonesia's finance minister expressed this plan in a meeting with the nation's parliamentary commission overseeing taxes (an income tax rate cut requires parliamentary approval).

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