HSBC economist for ASEAN Lim Su Sian has predicted that the Indonesian government will miss the state revenue target, due to the slowdown in economic growth. Growth in the first quarter was below the expectations of almost all economists and financial institutions in Indonesia.
This condition will be exacerbated if the proposed tax amnesty policy is rejected by the House of Representatives. "If the tax amnesty bill is not passed, investors in the portfolio will be disappointed," said Lim Su Sian at the Economic Outlook 2016 event at Hotel Mulia, Jakarta, Thursday (12/5).
Investors will presume that the failure to implement the tax amnesty policy will affect the rate of economic growth, as the flood of repatriated funds had been expected to finance priority projects such as infrastructure. (Read: Four Articles Delay Passing of Tax Amnesty Bill This Month).
According to Su Sian, if the tax amnesty does not materialise, the decrease in state revenue resulting from the economic slowdown will deepen. "It will not reach the target," he said. (See also: Panama Papers and the Hunting of Illicit Funds Around the World).
Su Sian explained that certainty over state revenue is important to investors, even though the government had issued a dozen policy packages to improve the business climate.
The private sector is still waiting for the implementation of policies on infrastructure development. For example, the government’s move to establish a public-private partnership (PPP) scheme to work on infrastructure projects.
He added that huge household consumption had helped prevent economic growth from falling even further due to the economic slowdown. Structural reforms that have resulted in improved economic fundamentals have been able to attract huge capital inflows. The government’s move to set up infrastructure financing by accelerating the auction of government bonds last year for 2016 funding, was quite promising. (See also: Inflow of Tax Amnesty Fund: BI to Keep Rupiah in Check).
However, said Su Sian, the government cannot rely solely on infrastructure spending. The budget realisation of the Ministry of Public Works and Public Housing does not match expectations. The same holds true for the state revenue. The economic slowdown has reduced value added tax revenue. Similarly, the decline in oil prices has resulted in decreased non-tax revenue and oil and gas income tax revenue.
Two days ago, Finance Minister Bambang Brodjonegoro said that the delayed deliberation of the tax amnesty bill may affect state revenue. As of May 2016, actual state revenue was only 23 percent of the target IDR 1822.5 trillion. This falls short of the 25 percent target set in the 2016 State Budget. “A delay in passing the tax amnesty bill will obviously affect state revenue because we won’t be able to do a review," he said (Read: MoF Prepares IDR 100t Government Securities for Repatriated Funds).
Earlier, Executive Director of the Center for Indonesia Taxation Analysis (CITA) Yustinus Prastowo said that failure to introduce the tax amnesty will have a negative impact on the credibility of the government. Discussions on the policy have been underway for almost a year.
Prastowo added that the deliberation of the bill should have made progress as there has been input from numerous parties. Some clauses in the bill are currently still being deliberated, particularly on the redemption rate which many considered too low. In the Tax Amnesty Bill, the redemption rate is set at 1, 2, and 3 percent for applicants who repatriate their funds, and at 2, 4, and 6 percent for those who only declare their assets abroad. (Read: Government-proposed Tax Amnesty Rate Considered Too Low)
Therefore, many fear that this scheme will cause losses to the state because if these funds are invested in the government bonds, the government will have to pay a rate of interest that is higher than the redemption rate. Currently, the bond interest rate is still above eight percent.
However, Chair of the Indonesian Employers Association (Apindo) Hariyadi Sukamdani said that based on an Apindo survey of 2,000 entrepreneurs, most would be interested in applying for tax amnesty if the redemption rate were low.
Hariyadi believes that a low rate will not harm the state because the massive inflow of liquidity into the country will strengthen the rupiah and lower the yields on government securities. "They expect one percent for repatriation and two percent for a declaration of assets. Five percent will make it less attractive," he said.
Even so, he predicted that the repatriated tax amnesty funds would not exceed IDR 1,000 trillion, provided that the policy offered an attractive redemption rate and legal certainty.