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Today's Headlines Tax
Indonesia's tax revenue realization grew 12.3 percent year-on-year to IDR 78.5 trillion (approx. USD $5.8 billion) - which includes tax income from the oil & gas sector - in January 2018 supported by accelerating economic growth and higher commodity prices. However, there remain major concerns about Indonesia's tax revenue realization and the country's tax buoyancy as well as tax-to-GDP ratio.
The International Monetary Fund (IMF) sees room for Indonesia's tax ratio to rise up to 15 percent of gross domestic product (GDP). Luis Breuer, IMF Mission Chief for Indonesia, expects to see an improvement in Indonesia's tax ratio - from the weak level of 10 percent of GDP in 2017 - on the back of Indonesia's improving economic growth. Accelerating economic growth should boost tax revenue realization.
Although tax revenue realization will not achieve the target that was set by the Indonesian government in the (revised) 2017 state budget, the government's customs and excise revenue target has been achieved this year. Data from the Directorate General of Customs and Excise show that IDR 189.36 trillion (approx. USD $14 billion) was collected in customs and excise revenue up to 28 December 2017, equivalent to 100.11 percent of the full-year target.
Indonesian Finance Minister Sri Mulyani Indrawati confirmed that her ministry issued a new regulation (a revision of PMK 188/PMK 04/2010) that raises the threshold for personal items - purchased overseas - that can be taken into Indonesia free of import duties and tax.
At the start of 2018 the Indonesian government will again raise the excise tax on tobacco products (including cigarettes) in Indonesia. The tax will be raised by an average of 10.04 percent, effective per 1 January 2018. Traditionally, the government hikes the tobacco excise tax once per year in search of more tax revenue and to discourage consumption of tobacco products.
Taxpayer compliance in Indonesia has risen after the completion of the tax amnesty program in early 2017 according to Yon Arsal, Director of Tax Revenue and Compliance at the Directorate General of Taxes.
Lana Soelistianingsih, economist at Samuel Aset Manajemen, said it will be very difficult for Indonesian authorities to achieve its 11.5 percent tax-to-GDP ratio target in 2017 despite the positive impact of the government's recently completed tax amnesty program.
Indonesian authorities are currently investigating a suspicious transfer, involving USD $1.4 billion, by Standard Chartered Plc made in late-2015. British multinational banking and financial services company Standard Chartered held these funds - the majority on behalf of Indonesian clients - at Guernsey, a Channel Islands in the English Channel near the French coast.
Those Indonesians (as well as expats living in Indonesia) who enjoy visiting places like Singapore for some quick shopping will be happy to learn that the Indonesian government decided to raise the maximum value of private goods - purchased overseas - that can be carried into Indonesia free of import duties and tax.
Indonesian cigarette manufacturer Gudang Garam will raise prices of its tobacco products if the central government goes ahead with its plans to introduce another cigarette excise tax hike at the start of 2018. This statement was made by Gudang Garam Director Istata Siddharta.
Latest Columns Tax
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.
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.
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.
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.
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.
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.
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.
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.
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.
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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