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Tax amnesty provides good momentum for economy
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Large trucks and heavy equipment are in operation at an infrastructure project in Indonesia. President Joko Widodo has pledged to focus on infrastructure development for his first five-year term. (Tempo/-)
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ndonesia’s tax amnesty program is expected to boost liquid assets into the country’s economy, which could be directed into infrastructure spending and stoke demand in the country.
This would give the government good momentum, as the tax amnesty program was launched along with favorable global monetary easing, said Fauzi Ichsan, a former senior economist who is now the executive head of Indonesia’s Deposit Insurance Corporation (LPS).
President Joko “Jokowi” Widodo’s administration expects that the tax amnesty program will see billions of dollars of Indonesian assets being declared and repatriated back to the country in exchange for a tax pardon with a low penalty of between 2 and 10 percent of the declared assets from the policy's implementation earlier this month to March 31, 2017.
Asset fund holders are being advised to invest them into infrastructure projects, among other mechanisms that include government debt papers and mutual funds. State revenue from the program will also be used for infrastructure projects and other initiatives that are included in the Jokowi administration’s priority list.
“However, the private sector is still weak, so Indonesia needs to boost demand by accelerating infrastructure development through state and regional budgets as its economic engine,” he said on Thursday on the sidelines of an open-house event at the official residence of the Financial Services Authority (OJK) chairman Muliaman D. Hadad.
Fauzi, who previously was a senior economist for Standard Chartered Bank Indonesia, said accelerated infrastructure projects would trigger construction activities, which would be supported by declining trends in lending rates.
“Infrastructure projects will create more job creations and better income, which will stoke loan demands,” he added. Bank Indonesia (BI) has cut the nation’s benchmark lending rate, locally known as the BI rate, four times so far this year to the 6.5 percent at present as the central bank has eased monetary policy to stoke economic activity and loan growth.
