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Searching for the sink to hold tax-amnesty inflow
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A Bank Mandiri teller shows US dollar notes and the Rupiah banknotes on March 15. The government's tax amnesty bill aims to bring billions of dollars of Indonesian-owned assets back to Indonesia from offshore banks. (ANTARA FOTO/Muhammad Adimaja)
W
hile the deadline of the tax amnesty bill deliberation is still in question, disagreement over how much the penalties imposed on tax evaders should be has also emerged. But let us not forget another important question: what the tax-amnesty inflows should be poured into.
The bill, which aims to repatriate Indonesian taxpayer assets kept abroad, is expected to be enacted into law this May, which means only 16 days are left for the government and House of Representatives to meet the targeted timeline.
However, the recent heated dispute has mainly focused on the sum of penalties to be given to tax evaders, and tended to neglect the question of how to use the repatriated assets to boost the economy--instead of creating an additional burden for the government.
Tax observer Yustinus Prastowo said the 1 percent to 6 percent penalty rate charged under the tax amnesty program was too small and should be increased. "It is too small, it should be 5 percent for repatriation and 10 percent for non-repatriation," he said on Thursday.
Based on the latest draft of the bill, a taxpayer who wants to repatriate his or her assets to Indonesia must pay the repatriation penalty, and retain the money for three years. The proposed penalties are 1 percent, 2 percent and 3 percent depending on the submission date.
Meanwhile, if a taxpayer only declares their assets without bringing them back to Indonesia, the penalty will be either 2 percent, 4 percent, and 6 percent, depending on when they apply for the program.
However businessman Sofjan Wanandi argued that the fees should be as low as possible to persuade targeted taxpayers to repatriate their assets instead of keeping silent and letting their assets remain idle abroad.
"The higher the tariff, the lower the amount of repatriated assets that are likely to come to Indonesia will be," Sofjan, who is the chief economic advisor to Vice President Jusuf Kalla, told thejakartapost.com.
New source of funds
Amid the debate, HSBC Indonesia Head of Global Market Ali Setiawan reminded the public that the priority of the tax amnesty was to return Indonesians’ funds stashed in foreign countries back to the country. The larger the value of the repatriated assets, the bigger the chance for Indonesia to seize new sources of funding for development will be.
"The key will be in the instruments. We need to provide them with government bonds and municipal bonds that can be used to finance infrastructure, or to deposit the funds in banks," he said.
The government has prepared some plans for how it will absorb the inflow, including a private equity fund (RDPT) specially designed to finance certain infrastructure projects. Other instruments are corporate bonds issued by state-owned construction companies to finance infrastructure projects they are working on.
Even the Indonesian Stock Exchange (IDX) has recently tried to convince lawmakers of the appeal of such instruments with a 'bursanomics' campaign, which essentially holds that funds should be directed into investments instead of savings.
However, the instruments are not there yet. And there is no detailed information about which infrastructure projects would be covered by the infrastructure bonds, or which RDPT would be appointed to absorb the tax amnesty inflows.
The plan sounds easier said than done as the inflows will mostly be in foreign currency, according to Ali. Without proper preparation, the fund — which was previously predicted to reach Rp 80 trillion (US$6 billion) — could end up being a new burden for the government.
"We have a limited amount of US dollar denominated government bonds, while corporations are less aggressive in expanding their global bonds. If they go to the bank, we will see billions of dollars of third party funds that will be difficult to be channeled into local projects as most of the loans are in rupiah," Ali said.
Assuming that the Tax Amnesty Law is passed in May, it will take at least one or two months for construction companies to proceed with infrastructure bond issuance, or for investment management companies to issue RDPT focusing on the real sector.
The government, or entities appointed for absorbing inflows, must pay for the return every month while the instruments are being prepared. Not to mention that the projects, as underlying assets for the instruments, may face two of the most persistent problems in Indonesian infrastructure development: red tape and land clearing problems.
Beyond providing instruments that are available right after the tax amnesty policy comes into effect, the government must make sure the infrastructure projects to be funded are feasible and have a clean-and-clear status.
Those are the issues that must be resolved to minimize the potential failures of the tax amnesty program that some House members have been worried about recently. (ags)
