Indonesian Finance Minister Bambang Brodjonegoro announced on Tuesday (05/04) that Indonesia's tax revenue reached IDR 194 trillion (approx. USD $14.7 billion) in the first quarter of 2016, down 2.1 percent from tax revenue in the same period one year earlier. Brodjonegoro blamed this poor result on lower income from value-added taxes (VATs) due to tax restitution and people's low consumption amid sluggish economic growth. Meanwhile, he informed that Indonesia plans to cut the personal income tax, a move aimed at boosting tax compliance.

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Despite the slowdown that occurred in Indonesia's property sector amid the overall cooling economy, at least 54 apartment projects are currently being developed in the capital city of Jakarta in 2016, nearly all of these projects are situated outside the city's central business district. Investment in apartments remains attractive for both the developer and end-user (or investor), various property watchers say. Meanwhile, global rating agency Standard & Poor's Financial Services says the outlook for Indonesian property developers this year depends on the passing of the tax amnesty bill.

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Stakeholders in Indonesia's property sector may regret to learn that Indonesia's House of Representatives (DPR) decided to postpone deliberations on the tax amnesty bill until (at least) April 2016. This tax amnesty bill, originally planned to be implemented in early 2016, offers attractive tax rates to those tax evaders who declare untaxed wealth and repatriate their funds to Indonesia. If implemented in early 2016, then the bill was estimated to generate up to USD $4.4 billion in additional tax revenue in 2016. Meanwhile, part of repatriated funds would find their way into the nation's property sector.

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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.

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So far this year, a total of 108 Indonesian companies have taken advantage of the tax incentive offered by the government of Indonesia through its fifth economic stimulus package (released on 22 October 2015). This tax incentive makes it more attractive for companies to revalue their fixed assets. With higher-valued assets as well as larger capital, these companies can borrow more funds from banks, hence having more room to invest. This should then boost overall economic growth of Southeast Asia's largest economy.

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The government of Indonesia is in the final phase of revising its tax collection target of 2016 from IDR 1,360.2 trillion (approx. USD $98.5 billion) to IDR 1,226.9 trillion (approx. USD $89 billion). Indonesian Finance Minister Bambang Brodjonegoro said the new 2016 tax target is based on a 10 percent year-on-year (y/y) growth of last year's tax realization plus an estimated IDR 60 trillion (approx. USD $4.3 billion) generated through the government's planned tax amnesty bill.

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As Indonesia's budget deficit may widen to 2.78 percent of gross domestic product (GDP) in 2015, the government is ready to seek USD $5 billion through multilateral loans and private placement. Scenaider Siahaan, Director for Strategy and Debt Portfolio at the Finance Ministry's Directorate General of Debt Management, said it involves standby loans that can be disbursed in the two weeks ahead if needed. The main reason why the budget deficit may be wider than expected is Indonesia's weaker-than-estimated tax revenue.

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The Director General of Indonesia's Tax Office, Sigit Priadi Pramudito, unexpectedly resigned from his post on Tuesday (01/12) as it became increasingly clear that there will be a big shortfall, perhaps up to IDR 250 trillion (approx. USD $18 billion), in the country's tax collection this year. In the Revised 2015 State Budget the Indonesian government targets to collect IDR 1,294.3 trillion (approx. USD $94 billion). Pramudito is the first tax chief to resign from his post in the modern history of Indonesia.

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Indonesia's Tax Office now has more power to check whether people and companies indeed pay taxes. Last week the Indonesian government basically scrapped the existence of banking data secrecy by introducing a new regulation that gives the nation's tax authorities access to information on accounts held at financial institutions, including bank accounts. The new regulation should contribute to a more transparent financial system and boost the government's (much-need) tax revenue realization. However, Indonesian parliament still needs to approve the new regulation.

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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.

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Indonesia's tax amnesty program will end soon. The nine-month program was designed to finish on 31 March 2017. Although the program has become the world's most successful tax amnesty program, it will fail to solve Indonesia's tax revenue collection problems. And with tax revenue being the largest source for public spending capacity, low tax compliance in Southeast Asia's largest economy obstructs more rapid development of the Indonesian economy.

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The tax amnesty program of Indonesia is yet to have an impact on Indonesia's property sector. Earlier, analysts and stakeholders expected part of the asset repatriations into Indonesia (under the government's tax amnesty program) to flow to property, either property ownership or property development projects. Although tax declarations and additional government revenue under the amnesty program were a success, the repatriation of assets that were stashed overseas has been weak. However, some stakeholders are optimistic that repatriated funds will flow to Indonesia's residential property in Q2-2017.

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Indonesia's budget deficit in 2016 is estimated to have reached 2.46 percent of the nation's gross domestic product (GDP), below the government's forecast of 2.7 percent of GDP and at a safe distance from the legal cap of 3.0 percent of GDP that is stipulated by Indonesian law. This is a positive matter that is supported by modestly growing tax revenue. In full-year 2016 tax revenue realization reached IDR 1,105.2 trillion (approx. USD $83 billion), only 81.6 percent of the target that was set in the Revised 2016 State Budget (APBN-P 2016) but slightly higher than tax revenue realization in the preceding year.

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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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Throughout the year 2016 the economy of Indonesia was plagued by major challenges stemming from abroad. In fact, most countries around the globe have been busy to soften the impact of low global economic growth on the local economy. In the case of Indonesia, authorities have unveiled a series of 14 economic policy packages aimed at improving investment, trade and purchasing power. Although it remains difficult to implement these packages in full force (due to the low quality of human resources at the local government level or conflicts of interests), they have helped to push Indonesia's economic growth into higher gear.

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In the October 2016 edition of its flagship Indonesia Economic Quarterly (IEQ) report, titled "Easing Pressures", the World Bank is positive about Indonesia's improved fiscal management and its impact on the nation's gross domestic product (GDP) growth. The Washington-based institution projects Indonesia's economic expansion at 5.1 percent (y/y) in 2016. However, it emphasizes that external risks (sluggish global economic growth and global market volatility) continue to pose a threat.

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The central bank of Indonesia (Bank Indonesia) has become slightly less optimistic about Indonesia's economic growth in the third quarter of 2016. Bank Indonesia revised down its growth projection to below the 5 percent (y/y) mark for Q3-2016 (from an earlier forecast of 5.2 percent). However, the lender of last resort still expects to see a better performance compared to the 4.73 percent (y/y) pace posted in Q3-2015. Meanwhile, low inflation and a strong rupiah could result in another interest rate cut in Southeast Asia's largest economy.

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At its latest monthly policy meeting the central bank of Indonesia (Bank Indonesia) left its interest rate regime unchanged with the benchmark BI rate at 6.50 percent (this month the bank is set to adopt the seven-day reverse repurchase rate - reverse repo - as the new benchmark rate). Bank Indonesia's decision to leave interest rates unchanged was a surprise move given that the nation's inflation is low, the rupiah is strengthening, but overall economic growth has remained sluggish. This context would actually justify a moderate interest rate cut of 25 basis points.

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