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Economy

Indonesia launches sequel to tax amnesty

Lower penalty for voluntary disclosure amid looming revenue shortfall

People waiting to register for the government's tax amnesty program at a tax office in Jakarta on Sept. 30, 2016.   © Reuters

JAKARTA -- Under pressure to plug a looming revenue shortfall, the Indonesian government is giving taxpayers another chance to report previously hidden assets, a move dubbed by critics as "tax amnesty chapter two."

The nine-month amnesty, which ended in March this year, exempted Indonesian tax dodgers from criminal prosecution and imposed on them small fines only if they declared previously hidden assets. The tax office had repeatedly said that once the program ended, officers would hunt down unreported assets and slap evaders with a hefty penalty of 200% of their original tax bills.

But thanks to a new regulation issued last week, individuals and corporations who voluntarily report their assets before tax investigators find them will only have to pay the upper limit of standard income tax at 30% and 25%, respectively. A lower rate of 12.5% is applied to individuals with income of 632 million rupiah ($47,000) or less, or corporations with income of 4.8 billion rupiah or less. The policy will be in place until June 2019.

Participants in Indonesia's tax amnesty wait at the tax department in Jakarta on March 31, the last day of the program. (Photo by Erwida Maulia)

The new rates are still higher than the 0.5% -- 10% penalty imposed during the tax amnesty. But critics have called it essentially a second amnesty aimed at raising short-term tax revenue.

"Why won't the tax office just take actions against those whose data are already in their hands?" said Darussalam, managing partner at Jakarta-based Danny Darussalam Tax Center. "That is [necessary] to create deterrent effects."

The tax office vehemently denied such allegations.

"There is no such thing as tax amnesty chapter two," the outgoing chief of Indonesia's tax office, Ken Dwijugiasteadi, told a press conference on Monday. "There was no investigation [against suspected tax evaders] during [the] tax amnesty. Presently, though, investigations [are] ongoing."

Tunjung Nugroho, who is the head of investigation planning at the tax office, described the current situation as a "race between us to find them, and them to come forward" with unreported assets. The 200% penalty is still applicable to those who are found by authorities, he added.

Nugroho said over the past two months it had collected data on 786,000 potential taxpayers who did not participate in the amnesty. It has issued tax bills worth more than 300 billion rupiah ($22 million) for some 200 taxpayers.

Indonesian Finance Minister Sri Mulyani Indrawati

Not all observers are critical. The original tax amnesty was hailed as one of the world's most successful after more than 4,700 trillion rupiah ($348 billion) in the value of assets were declared, equivalent to about 40% of the country's gross domestic product. On the other hand, repatriation, or assets brought home from abroad, fell well short of the government's target.

"I believe that there are still many people in Indonesia who forget to report, or are afraid," said Rofikoh Rokhim, a commissioner at Bank Rakyat Indonesia, one of the country's largest state-owned banks. "So this is a good way to give chance for wealthy people. Now they start to be sure that the government will give red carpet for anyone who wants to bring home the money."

Indonesia's tax revenue is only about 11% of GDP, lower than most of its Southeast Asian neighbors. Finance Minister Sri Mulyani Indrawati, a former managing director at the World Bank, is trying to lift this to 13% over the long term.

But for this year, she is faced with a tax shortfall that can cut into spending and cap growth. Tax revenue for the nine months until September stood at 770 trillion rupiah, or only 60% of its full-year target. Under its own laws, Indonesia is required to keep its budget deficit below 3% of GDP.

It is unclear how much Indrawati's new efforts can boost the budget. Nevertheless, analysts said too many ad hoc policies give the impression that the government was falling short of its reform efforts.

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