T

he planned implementation of a tax amnesty may not yield the desired results as such schemes usually have many downsides, experts have warned.

According to Jay K. Rosengard, academic director at the Harvard Kennedy School, the idea of strengthening the tax base by pardoning tax evaders '€” an amnesty objective '€” is unconvincing and poses a moral hazard.

'€œMost of the time, if you have a tax amnesty, it'€™s when you'€™re trying to increase revenue and you say, '€˜Well, we'€™ll forgive you this time if you become a good taxpayer in the future.'€™ It isn'€™t very convincing,'€ he said on Thursday during the International Forum on Economic Development and Public Policy.

The forum, hosted by the Finance Ministry, was held on Dec. 10-11 in Nusa Dua, Bali.

'€œIf your basic tax system is the same and you'€™re really not changing the whole system, it [the amnesty] basically creates a terrible moral hazard, in the sense that you'€™re encouraging people to do bad things because they won'€™t suffer the consequences. They will be pardoned and it'€™s terribly unfair to compliant taxpayers.'€

Rosengard said he was aware of the government'€™s plan to implement the amnesty in 2016, but said it should instead enforce existing regulations. '€œWhat you really need is to fairly and equally enforce sanctions according to the law, so that there'€™s more risks for not complying.'€

Michael Keen, deputy director of the fiscal affairs department of the International Monetary Fund (IMF), shared Rosengard'€™s view. '€œIt'€™s hard to think of good arguments for amnesties,'€ he said at the forum.

As already reported, the government and lawmakers at the House of Representatives expect to start deliberating the bill soon.

The government has previously stated that when passed, the amnesty could reap millions of dollars in financial assets now kept offshore, especially by rich individuals.

The money earned by the amnesty will be of crucial financial assistance in efforts to build infrastructure across the country, according to the government.

The bill offers incentives in the form of redemption rates that will be set at 2 percent and 5 percent only on tax arrears that must be paid by evaders within a certain period of time.

Separately, Finance Minister Bambang Brodjonegoro acknowledged that '€œin a normal situation, [the amnesty] would seem to offend against justice.'€

However, he argued that it was a breakthrough that the country needed to improve its tax system and to repatriate funds to Indonesia.

'€œThis is not a routine policy, but we have to do it. Not to mention right now we don'€™t have access to banking industry data,'€ he said in a press conference on Friday.

Bambang gave an assurance that a separate article on asset repatriation would be included in the upcoming law that would allow the pardoned evaders to bring back their money by purchasing government debt papers (SBN).

'€œIf they decide to purchase the SBNs, the redemption rate will be set lower as an incentive. If not, the rate will stay the same.'€

He added that the move would also help balance the ownership composition of government bonds by increasing the percentage of domestic investors.

No official figure is available on the amount of funds that could be accrued to the tax system, but Bambang again reiterated his conviction that it would exceed Rp 4,000 trillion (US$287 billion), including funds kept locally.