As widely predicted, the six-month tax amnesty led to the declaration of only Rp 595 trillion (US$40.2 billion) worth of hidden assets within the country and overseas and produced only Rp 61 trillion in redemption fees, according to the Finance Ministry.

Yet more disappointing is that of the 247,918 individual and institutional taxpayers who used the facility, more than 78 percent were those who declared hidden assets of only up to Rp 1 billion, 16.60 percent with assets of up to Rp 10 billion, 3.73 percent with assets of up to Rp 100 billion. In addition, 705 taxpayers or 0.28 percent of the total declared assets ranging from Rp 100 billion to Rp 1 trillion and eleven taxpayers with assets of more than Rp 1 trillion.

The tax amnesty seemed to suffer heavily from a moral hazard prevalent among taxpayers due to the acute lack of vigorous law enforcement and investigative audits  of tax evaders over the past four years.

This anomaly was confirmed by the fact that almost Rp 33 trillion of the Rp 61 trillion in penalty fines collected in the second tax amnesty were derived from taxpayers who had participated in the first amnesty. This meant they had not been truly honest or not fully straightforward with their assets when they took benefit of the first tax amnesty, which ended in March 2017.

The Rp 595 trillion worth of hidden assets declared in the second tax amnesty, despite the low fines of only between 6 and 11 percent imposed, were still way below the Rp 11 quadrillion in assets the government believed were still hidden by Indonesian taxpayers overseas.

Most analysts had warned last year soon after the enactment of the Tax Harmonization Law in November that another tax amnesty would cause a moral hazard, damage the government’s policymaking credibility and insult the public’s sense of justice.

Giving pardon again to tax evaders, who may include corruptors, illegal miners and loggers and drug syndicates, would appear as a blank check for money launderers, and such a policy could prompt the Paris-based OECD Financial Action Task Force on Money Laundering (FATF) to blacklist Indonesia as a noncooperative jurisdiction.

But since the government seemed under pressure to sharply increase revenues in a short time it went ahead offering its second tax amnesty, though for three months shorter than the first one.

The government is indeed coming under pressure to reduce the fiscal deficit this year so that it can smoothly return to the legal budget ceiling of below 3 percent of gross domestic product (GDP) in 2023, from an estimated 4.85 percent this year. Other pressures include the big decline in tax revenues due to the 2.2 percent economic contraction in 2020 and the persistently big budget needed to fight the COVID-19 pandemic.

The declaration of more than Rp 4.8 quadrillion worth of previously undisclosed assets, Rp 114 trillion in redemption money payments and Rp 21 trillion in other tax receipts that were brought about by the 2016-2017 tax amnesty also seemed a great temptation for a government so strapped for additional revenues.

The tax authority also seemed to assume big tax evaders would feel “under stronger pressure” to join a tax amnesty facility because the Directorate General of Taxes (DGT) has since 2018 collected data on Indonesian taxpayers’ assets kept in other jurisdictions that are signatories to the OECD's Automatic Exchange of Information (AEOI) in tax matters.

But the latest developments have confirmed that the DGT is acutely short of the financial and human resources to follow up the first-period pardon with strong law enforcement and credible, comprehensive audits of taxpayers. Moreover, the DGT is still unable to build the strong infrastructure needed for tax information intelligence, based on information gathered during the previous tax amnesty period, to cross-check future tax returns.

Also discouraging is the perception seemingly prevalent among large tax evaders that neither the DGT nor other law enforcement agencies have enough legal power or technical competence to hunt down and bring back their hidden assets to Indonesia even though the AEOI platform has enabled the DGT to gather more comprehensive data on assets hidden overseas by Indonesian taxpayers.

The current government may no longer be so strapped for additional revenue due to the huge windfall from the commodity boom, notably coal, nickel and palm oil.

But we are afraid that if the new government, which will be elected in 2024, faces uphill fiscal challenges in view of global economic uncertainties and seeks quick, one-time revenue to meet basic expenditure needs, another tax amnesty may be really tempting again.

The blunt fact is that the costs of another tax pardon, in terms of the moral hazards of voluntary tax compliance and damage to government policy credibility, would be quite enormous under the inefficient and technically incompetent tax administration system that exists now.

The government should fully realize that tax amnesties should be a one-best-shot strategy, meaning that they are a once-in-a-lifetime opportunity. More than one or multiple amnesties will be even less effective and have a perverse effect on voluntary tax compliance.

To minimize such moral hazards it is most imperative for the tax authority to immediately engage in vigorous law enforcement and extensive post-amnesty tax audits on taxpayers who are still suspected of hiding large sums of assets within the country and overseas. And the penalties imposed must be extremely heavy.

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The writer is a senior editor of The Jakarta Post.