"It is implicitly regulated in the heart of the Tax Amnesty Law. Issuing too many rules will only make those signing up for the tax amnesty even more confused."
Arief Kamaludin|KATADATA

The Ministry of Finance has yet to finalise one of the derivative regulations from the Tax Amnesty Law. The regulation is the Regulation of the Minister of Finance on the use of funds repatriated under the tax amnesty program.

One of the key points the regulation needs to address is the disbursement of repatriated funds by banks in the form of bank loans. Under the Tax Amnesty Law, repatriated funds must be placed in domestic investment instruments for at least three years. These instruments include a range of financial products and investments, and the real sector.

Although the funds cannot be withdrawn before the three year term is up, banks can circulate the funds by lending to borrowers. It could be that the borrower is actually the company that repatriated the funds in the first place, something also known as a back-to-back loan. It could even be given to foreign companies or to firms located overseas.

Bank Central Asia (BCA) economist David Sumual said the practice will undermine the positive impact of the tax amnesty policy on the domestic economy because lending the funds to foreign companies will only benefit other countries, not Indonesia.

(Read: The Tax Amnesty Rules)

The government has even allowed foreign banks to become gateways for these repatriated funds. "What about the back-to-back loans? Is it OK to use them to finance companies overseas? If so, the multiplier effect on the economy will be reduced," he told Katadata, Wednesday (20/7).

Chief Executive of Banking Supervision at the Financial Services Authority (OJK), Nelson Tampubolon, said that the Tax Amnesty Law indirectly prohibits back-to-back loans. That is why the OJK has no plan to issue new regulations to specifically govern these transactions.

"It is implicitly regulated in the heart of the Tax Amnesty Law. Issuing too many rules will only make those signing up for the tax amnesty even more confused," Nelson said after a hearing with DPR Commission XI (Finance) at the parliamentary building in Jakarta yesterday (20/7).

(Read: Tax Amnesty Rules Issued, Finance Minister Threatens Foreign Banks Planning to Block Repatriation)

Nevertheless, he said that these transactions should be governed by the third ministerial regulation on the investment of repatriated funds in the real sector. The government plans to issue the regulation in the next week or two.

This regulation will also include provisions on monitoring repatriated funds that are switched between instruments during the three-year minimum term. According to Nelson, funds invested in the form of assets could be used as collateral to obtain new credit or loans because entrepreneurs who repatriate their assets would want to use the funds as investment capital.

This, he said, is understandable because that way the funds will benefit the economy, especially the real sector. However, he reiterated that the funds derived from the repatriated assets, either in the form of credit or other loans, must only be used for domestic activities.

"So funds placed in time deposits are like cash collateral. When I get credit, for example, which is derived from funds in this cash collateral, it must be used (for) domestic projects (or companies)," said Nelson.

(Read: Flood of Repatriated Funds Flow, BI Urges Large Banks to Expand Forex Credit)

After the House passed the tax amnesty bill into law in June, the government immediately issued three derivative rules. The first is Regulation of the Minister of Finance No. 118 on Implementation of the Tax Amnesty Law, which defines the subject and object of the tax amnesty, the terms and conditions, and other topics.

The second derivative is Regulation of the Minister of Finance No. 119 on the Procedure for the Repatriation of Taxpayer Assets to Indonesia and Investment Placement in the Financial Market. This rule governs, among others, the banks appointed to absorb the tax amnesty proceeds and the financial institutions serving as the gateways for the asset repatriation.

In addition, the Directorate General of Tax has also issued a regulation on the tax amnesty documents and technical guidelines for completing these documents.