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Tax amnesty could backfire on rupiah
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A bank clerk readies bundles of rupiah to pay out to customers. (TEMPO/*)
T
he planned tax amnesty for Indonesians keeping untaxed funds abroad could backfire on rupiah stability, an economist has warned.
Permata Bank economist Josua Pardede said the tax amnesty could bring some Rp2,000 trillion (USD153 billion) back to the country and increase tax revenues by Rp40-60 trillion, but cautioned that it could also strengthen the rupiah and thereby hurt exports.
"If the rupiah becomes overvalued, exports will drop and [create] a fiscal disadvantage”, Josua asserted.
Indonesia's current account deficit currently stands at around 2 to 2.5 percent of the gross domestic product (GDP).
Therefore, Joshua said, it was necessary for the Finance Ministry and the central bank to issue a policy mix in the short term to anticipate a flood of foreign funds repatriated to the country.
"Tax amnesty aims to help the state budget, but on the other hand it is expected not to interfere with the stability of the exchange rate," he said.
The Finance Ministry's head of fiscal policy, Suahasil Nazara, admitted the tax amnesty bill, which is currently in deliberations at the House of Representatives, was a controversial way to increase tax revenue.
However, once the bill was passed, the tax amnesty would bring two advantages: the declaration of unreported assets and the repatriation of assets from abroad.
"Tax amnesty aims to provide the opportunity [for citizens] to declare overseas assets that have not been reported and benefit from a special tax rate," he said.
"We understand that it is controversial, but we believe it is an opportunity to bring back the assets owned by Indonesian people abroad to contribute to economic growth," he added.
For the implementation of the regulation, the House needed to revise three related laws, including the General Provisions and Tax Procedures Law, Suahasil explained.
Meanwhile, President Joko “Jokowi” Widodo has reportedly prepared alternative regulations, such as a government regulation on the tax amnesty, in case lawmakers fail to approve the bill.
The tax revenue target for this year has been set at Rp1.36 quadrillion (US$102.64 billion), 28.2 percent higher than the Rp 1.06 quadrillion achieved in 2015. However, the government plans to revise the state budget with more realistic figures, including a less ambitious tax revenue target. (dan)
