The Finance Ministry of Indonesia will study whether the price of a package of cigarettes can be raised to IDR 50,000 (approx. USD $3.8), almost twice as high as the current average price of a package of cigarettes in Indonesia. The price hike would help the government to reduce a looming tax shortfall and discourage people from consuming their death sticks. The Tobacco Atlas estimates that there are 53.7 million active adult smokers and 2.6 million active youth smokers in Indonesia. Hence, Indonesia is the third-largest cigarette consumer (after China and Russia).

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Indonesia has finally become more realistic in terms of setting its tax revenue target. In the 2017 State Budget draft proposal that was sent for approval by the central government to Indonesia's House of Representatives (DPR) earlier this week, it set the 2017 tax revenue target at IDR 1,271.7 trillion (approx. USD $97.1 billion), down 3.6 percent from the target of IDR 1,318.9 trillion worth of tax revenue in the 2016 budget. A more realistic tax revenue target will enhance Indonesia's fiscal credibility.

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The government of Indonesia selected two islands - Resort islands Bintan and Rempang, situated near Singapore - as the possible location for its tax haven (a low-tax jurisdiction that should prevent Indonesian taxpayers from moving their assets to other countries in search of more attractive tax rates, while non-residents will also be able to establish so-called shell companies). Currently, a significant portion of Indonesian funds flow to offshore financial centers in Singapore, Mauritius, British Virgin Islands and Panama.

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Indonesia is still planning to revise the nation's tax tariff system, specifically corporate income tax and value-added tax (VAT). Indonesia's corporate income tax rate could be cut to 17 percent, from 25 percent currently. The plans were confirmed this week by Indonesian President Joko Widodo as well as Indonesian Finance Minister Sri Mulyani Indrawati. Lowering Indonesia's corporate income tax to 17 percent - matching Singapore's tariff - would make it more attractive for investors to move, or keep, their business in Indonesia.

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Although the peak of repatriated fund flows and tax declarations - in the context of Indonesia's tax amnesty program - are expected to occur in the months September and October 2016, there is room for concern whether the ambitious targets of the government can be achieved. Between the launch of the program on 18 July and 1 August 2016 the government only saw IDR 98.43 billion (approx. USD $7.6 million) of additional income from 464 tax payers, while it targets to collect a total of IDR 165 trillion (approx. USD $12.7 billion) within a nine-month period.

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Before the end of 2016 the Indonesian government plans to have imposed a controversial excise on plastic packaging. Earlier this year the government had already suggested a IDR 200 (approx. USD $0.02) excise duty for food and beverage products wrapped in plastic packages. However, with all spotlights focused on Indonesia's tax amnesty program this plastic wrapping excise tax has been off analysts' radar. Lets take a closer look at this excise: what is it and why does the government of Southeast Asia's largest economy want to implement it?

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Singaporean authorities deny that the nation's banks offer incentives to Indonesian clients to keep their assets stashed in Singapore. Last week, reports started to circulate in local Indonesian media claiming that Singaporean banks offer to finance the difference between interest paid on the declaration of assets kept in Singapore and the interest paid on the assets repatriated to Indonesia. Indonesia is eager to see the repatriation of offshore funds (stashed in so-called tax havens) through the tax amnesty program. It is estimated that some USD $200 billion worth of Indonesian funds are kept in Singapore.

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According to an Indonesian tax official, 149 taxpayers have already filed for Indonesia's tax amnesty program (which was launched on Monday 18 July 2016) at North Jakarta's Tax Office. Eleven have already settled their tax debt. However, spokesperson for the Directorate General of Taxation, Hestu Yoga Saksama, provided no information about the amount of tax revenue or repatriated funds that are involved. Saksama is optimistic that the government's target of seeing the repatriation of IDR 1,000 trillion (approx. USD $76 billion) worth of previously undeclared offshore assets into Indonesia will be achieved.

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Indonesia plans to introduce a special tax regulation for those small and medium-sized enterprises that generate revenue and profit through online retail sales (e-commerce business). Daniel Tumiwa, Chairman of the Indonesian E-commerce Association (idEA), informed reporters about the government's plan. He added that only a small tax tariff will be charged on small and medium-sized e-commerce companies. The new regulation is expected to be implemented later this year.

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The Indonesian rupiah has been rallying impressively over the past couple of days in the "post-Brexit" era. Amid severe uncertainty ahead of the Brexit referendum result, Indonesia's currency depreciated markedly on Thursday 23 June 2016. However, in the following days the rupiah started to strengthen, touching a two-month high against the US dollar (even though the US dollar has been strong as well due to the Brexit issue). Based on the Bloomberg Dollar Index the rupiah is now trading at IDR 13,175 per US dollar. What explains this recent rupiah strength?

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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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