The government is optimistic that the House of Representatives will pass the Tax Amnesty Bill into law. If that happens, the domestic market is expected to be flooded with hundreds of trillions of rupiahs of repatriated funds from abroad as a result of the policy.
In anticipation of a huge inflow of funds, Finance Minister Bambang Brodjonegoro has appointed three state banks – PT Bank Mandiri, PT Bank Negara Indonesia, and PT Bank Rakyat Indonesia – to serve as investment managers of the repatriated funds. (Read: Ministry of Finance to Overhaul Tax Officials to Secure Tax Amnesty).
Bambang explained that the government had appointed five companies to manage the repatriated funds. Unfortunately, he was reluctant to reveal the names of the other two financial institutions. "We're still making preparations. They will definitely be involved," he said after attending the 2nd Annual Indonesia Infrastructure Finance Conference at the Grand Hyatt Hotel, Jakarta, Tuesday (24/5).
On the same occasion, Executive Director of Economic and Monetary Policy of Bank Indonesia (BI) Juda Agung explained that the repatriated funds should be locked for at least three years. This would prevent the funds disappearing back overseas. "So we should set up a special deposit account or trustee to monitor them, "said Juda.
Therefore, he suggested to the government to set up instruments in real sector financing such as infrastructure, similar to the Cagamas scheme adopted by neighbouring Malaysia, which entailed issuing so-called Cagamas bonds.
This instrument will buy mortgages from banks to be securitized and placed in real sector financing outlets. "For infrastructure or housing," he said. (Read: Bambang Optimistic to Attain Economic Growth through Tax Amnesty).
These instruments will be used to accommodate the significant inflow of repatriated funds. The Ministry of Finance has set a target to increase state revenue resulting from the tax amnesty policy by approximately IDR 160-180 billion. This target will be included in the revised 2016 State Budget.
Bambang added that the potential amount that could be raised from taxpayers who will participate in the policy by declaring their assets abroad was IDR 3,500-4,000 trillion. This is a conservative figure, given that the estimated total value of assets deposited overseas is IDR 11,000 trillion.
Tax Amnesty Bill sets redemption rates of two, four and six percent for those who declare their assets. When averaged, this means the repatriated funds could amount to IDR 160 trillion. (See also: Panama Papers and the Hunting of Illicit Funds around the World).
Previously, Bank Indonesia made a more pessimistic estimate of the revenue arising from the tax amnesty. The central bank estimated that the funds deposited by Indonesian citizens overseas amounted to IDR 3,147 trillion, of which 60 percent are legal and 40 percent are illegal. The redemption rate revenue from that amount is an estimated IDR 47.5 trillion.