Jokowi’s tax amnesty: Bound to fail since day one?

As the realisation of the paperwork and imbalances in Indonesia’s tax amnesty sink in workers are no longer convinced about the President’s big idea.

By Fawnia

After initial excitement, Indonesians have fallen out of love with Jokowi’s tax amnesty. The system requires tonnes of complicated paperwork; clearly reflecting the Indonesian government’s love for perplexing bureaucracy. Citizens have to travel back and forth to the Tax Service Office (KPP) to revise and print countless pieces of paperwork that list their belongings.

There is also confusion as to whether insurance premiums should be reported: on further explanation, they are, although the government had not explained this. The lack of information created turmoil thanks to the differing understandings of tax consultants, tax service staff, or even insurance agents.

Already failing?

Almost a third of the way into the programme, the targets for repatriated assets, declared assets, and penalty payments remain unmet. Repatriated assets, as an example, amount to Rp 19 billion (US$ 1,448,172) or just 1.9% percent of the initial target. The unrealistic initial targets have made the policy fall terribly short, despite the fact the government has successfully increased the country’s tax base with over 1,900 new taxpayers. During the first five days since its implementation, the bill has also gathered information about Rp 400 billion (US$ 30.5 million) worth of assets.

It is worth noting that half of the tax amnesty participants were not the targets the government had in mind. While Jokowi has mentioned several times that conglomerates and tycoons would benefit most out of the policy, it turns out most of the penalty rates have been between Rp 1 million (US$ 76) to Rp 100 million (US$ 7,600). This shows that most participants are middle-class taxpayers or even lower. As a comparison, a working-class household with one working family member out of four has to pay Rp 15 million (US$ 1,143). The failure to encourage the wealthier class to participate in the programme undoubtedly contributes to its inability to meet its goal.

Public rage

The amnesty was planned to run until March 2017, but whether it lasts will depend on the government’s ability to manage the backlash from the public on the controversial scheme. At the beginning of September, members of the Confederation of Indonesian Workers Union (KSPI) marched around the Constitutional Court demanding the annulment of the bill; dubbing it an “act of injustice” against workers. They are also prepared to take their rally to a greater scale; nationwide even, if the government refuses to hear what they have to say. While marching, workers carried provocative signs saying “UU Tax Amnesty Bukti Pemerintah Tunduk Pada Pengusaha Hitam” (tax amnesty bill proves the government cowers under illegal businessmen).

In an attempt to soothe the public’s anger, the government has again affirmed that workers that earn less than Rp 54 million (US$ 4,000) a year or Rp 4.5 million (US$ 342) monthly would not be part of the tax programme. Pensioners, labourers, household assistants, fishermen, farmers, and Indonesian citizens with no income are also not required to participate. However, this is not the answer most workers are looking for; someone who earns over Rp 4.5 million a month would still have to take part in the bill while trying to make ends meet.

The role of Singapore

Singaporean banks were reported to be sharing the names of Indonesian clients who join the tax amnesty with local police. As part of this effort, Singapore’s Commercial Affairs Department (CAD) asked banks to file suspicious transaction reports (STR) whenever their customers took part in the tax pardon programme. This practice prevents suspected tax crimes, such as money-laundering, but Indonesian clients are significantly less happy with the move.

Indonesian Finance Minister Sri Mulyani said she has personally contacted Deputy Prime Minister Tarman to demand an explanation from the Singaporean government on this matter. She also assured concerned Indonesian clients, that those entering the programmes wouldn’t be considered criminals.

With all the mess and complications the tax amnesty has brought, the debate boils down to one question: is it worth it? While the Indonesian government does not seem to have Plan B to resuscitate the economy, then yes; the tax amnesty is the best shot they have got.