Tax amnesty: the solution to Indonesia’s economic woes?

Photo: The Official CTBTO Photostream

By Fawnia

When the news about the passage of a tax amnesty bill in the Indonesian parliament hit the headlines on 28 June, the ensuing confusion was not unexpected.

The bill is expected to boost Indonesia’s economy. It was articulated as a means of stabilising the country’s economy that was facing a huge crisis just a few months back, when Indonesian rupiah-US dollar exchange rate plunged to the weakest level in 16 years, the worst yet since the 1998 economic crisis in Indonesia.

At one point, the Indonesia rupiah weakened to 14.450 to $1, causing the price of essential goods to increase drastically. Fauzi Ichsan, the executive head of Indonesia’s Deposit Insurance Corporation (LPS), stated that the tax amnesty bill would provide good momentum for Indonesia’s economy to regain its balance after receiving a huge blow on the second half of 2015 up to the first few months of 2016. The bill was predicted to accelerate infrastructure development, and thus creating more jobs.

On one occasion, President Joko “Jokowi” Widodo revealed that he expected the bill to encourage Indonesian investors that have been investing abroad to invest in Indonesia instead. He also said that “now is the time to build Indonesia”, and that he would personally oversee the execution of the programme.

Widodo also made reassurances that confidential data containing the investors applying for the tax amnesty would not be leaked, and hence there would be no need for them to hold back from the opportunity.

Furthermore, Tax Office general director Ken Dwijugiasteadi affirmed that he is willing to be held accountable for any failure in the tax amnesty programme. He implied that the current programme would be successful, unlike previous tax amnesty programmes that took effect in 1964 and in 1984.

However, Indonesian investors are not entirely convinced. Several investors have expressed their reluctance. That is mostly because they are unsettled by the fact that the Tax Office would also be getting their hands on a list of Indonesian investors who have accounts abroad, investors who would end up higher tax returns.

On top of all this, members of the Confederation of Indonesian Workers’ Union (KSPI) have unequivocally condemned the tax amnesty bill. They even plan to request judicial review of the bill, by the end of July.

Said Iqbal, President of KSPI, said the bill was unfair to lower wage workers who are obedient taxpayers. Rather, he said that workers paid under the minimum wage should be the ones receiving such financial aid from the government instead.

In the same vein, Yenny Sucipto of Indonesian Forum for Budget Transparency (FITRA) presumed that the tax amnesty bill would only benefit corrupt individuals. The lack of transparency in the execution of the bill, she added, would give a free pass for corrupt individuals to evade tax.

There are yet other dangers the tax amnesty bill could present. Permata Bank economist Josua Pardede said that although the bill is expected to increase the government revenue, it could also backfire and destabilise the exchange rate.

Despite facing such opposition, President Widodo has stood his ground. By next week (18 July). Further delay would have damaged infrastructure development in the long run, according to the executive director of Center for Indonesia Taxation Analysis (CITA), Yustinus Prastowo. Yustinus insisted that the tax amnesty bill is absolutely needed.

The question now is whether the tax amnesty bill will fail like its predecessors, or whether it would become the key to solving Indonesia’s economic woes. Tax Office general director Ken Dwijugiasteadi blamed the emergence of September 30th Movement of 1965, which sparked major political change in Indonesia, as the cause of failure of the 1964 tax amnesty policy.

The failure of the second tax amnesty programme in 1984, according to Dwijugiasteadi, was because it was merely a means of changing the tax system from one involving official assessment to one relying on self-assessment.