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Jakarta Post

Govt mulling Tobin tax for controlling hot money flows

  • News Desk

    The Jakarta Post

Jakarta   /   Thu, January 10, 2019   /   10:21 am
Govt mulling Tobin tax for controlling hot money flows Finance Minister Sri Mulyani Indrawati (Antara/Sigid Kurniawan)

The government is considering imposing the Tobin tax, which penalizes short-term currency speculation, to control the flow of hot money.

Macroeconomic policy center head Adrianto of the Finance Ministry's Fiscal Policy Agency (BKF) said the objective of the tax was to prevent the outflow of hot money from the stock, bond and currency markets. The quick movement of currency speculation was to blame for the rupiah's unstable exchange rate against the US dollar.

“In principle, a Tobin tax is important to preventing capital outflows, particularly capital for short-term, speculative investments,” Adrianto said on Wednesday in Jakarta as quoted by kontan.co.id.

However, the ministry needed to run a comprehensive study on the potential impacts of the tax before it was applied in Indonesia, he said. Adrianto added that the study should look particularly at the types of capital that would be taxed for better effectiveness, and to prevent unrest among investors.

Finance Minister Sri Mulyani Indrawati said earlier that the ministry needed time to determined the right tax scheme for Indonesia, because the objective was to maintain stability and to benefit from capital inflows.

Center for Indonesia Taxation Analysis (CITA) executive director Yustinus Prastowo agreed that the Tobin tax was ideal for preventing capital outflows amid a global situation dominated by the volatility of hot money.

However, he added, it would be difficult for Indonesia to impose the tax because its financial market was not deep and was still dominated by foreign investors.

Yustinus therefore suggested that the government should refrain from applying the Tobin tax in the country. “The strategy is to offer incentives to investors that maintain long-term capital investment in Indonesia, and not to deter short-term investments,” he said. (bbn)