JAKARTA -- Indonesia's tax amnesty program has raked in nearly two-thirds of the revenue target as of Friday, beating skeptics' estimates as tycoons and other high-profile figures unexpectedly showed up at tax offices to declare hidden assets.
Launched on July 1, President Joko Widodo's latest flagship policy generated 97.1 trillion rupiah ($7.44 billion) in additional revenue to the state as of 8 p.m. Friday -- the end of the first reporting period -- or 62% of the 165 trillion rupiah the government aims to collect under the amnesty scheme through March 2017. Some 3,540 trillion rupiah have been declared, including 135 trillion rupiah repatriated from overseas.
"And those are still counting," Widodo told the press as he inspected the central tax office in Jakarta on Friday evening. "There are still many people in the line [to apply for amnesty] through midnight."
Indonesia's tax amnesty program is "one of the world's most successful," Citi Research equity analyst Ferry Wong had said Sept. 20, when declared assets were less than a third of Friday's figure.
Finance Minister Sri Mulyani Indrawati said Indonesia's tax amnesty rates are "very low" and "very rare" -- as compared with those offered by other countries adopting tax amnesty.
The rates are the lowest at 2-4% for participants filing their applications between July and September, and go up to 3-10% for those who apply later. Indonesia's nine-month tax amnesty program is divided into three three-month periods through March of next year.
Failure to participate may expose individuals or entities to much higher penalties. Indonesia is preparing to implement the Organization for Economic Cooperation and Development framework for automatic exchange of information between tax authorities, including tax haven countries, in 2018.
Domestic assets made up the majority of assets declared in the first period. This even though the program was originally intended to lure in Indonesian assets parked overseas, which the former finance minister, Bambang Brodjonegoro, said might reach 11,500 trillion rupiah.
The first-period achievements beat skeptics' estimates, including Indonesia's own central bank. Bank Indonesia Gov. Agus Martowardojo in early September said he expected only 21 trillion rupiah in total revenue from the program. Indeed, from July through early September, asset declaration amounts had only just inched higher.
However, over the past few weeks, as more technical guidelines were issued and better procedural clarity offered, wealthy Indonesians began showing up at tax offices in Jakarta and other major Indonesian cities. Among the first high-profile figures publicly showing their participation was James Riady, deputy chairman of Chinese-Indonesian conglomerate Lippo Group.
"We really appreciate this government initiative ... to implement tax reforms, starting with this tax amnesty, which in essence is a reset button allowing people to enter the system," Riady told journalists after filing his amnesty application on Sept. 3.
Other prominent names soon followed suit: Adaro Energy CEO Garibaldi Thohir; Hutomo "Tommy" Mandala Putra, son of late president Suharto; businessman-turned-politician Aburizal Bakrie; and high-profile lawyer Hotman Paris. They publicly showcased their participation although the law actually guarantees secrecy should they opt for it.
"At the beginning, many were unsure if the government will [stick to this policy]," Rosan Roeslani, the head of the Indonesian Chamber of Commerce and Industry, or Kadin Indonesia, said as he and a dozen other Kadin executives registered for amnesty at a Jakarta tax office earlier this week. "But the interest has hiked. Why? Because there is trust and confidence now in the government among the private sector."
Despite what is widely seen as "success" of the first period, it remains to be seen whether the rest of the revenue target can be achieved by the final deadline in March.
Roeslani said interest may wane as the penalty tax rates go up from October onward.
On the bright side, both Riady and Roeslani suggested that while the first period saw individuals coming forward with their previously hidden assets, the next periods may see revelations by companies -- given that it takes longer to calculate corporate assets.
Indrawati, meanwhile, said the tax office will be targeting small and midsize businesses in the next two periods, as they can enjoy flat declaration rates of 0.5% and 2%, depending on the scale of the business.
Regardless of the revenue count, Widodo said the upshot of the amnesty program is the government's expanding database of taxpayers and their assets.
Nearly 350,000 individuals and entities had taken part in the amnesty as of Friday evening.
"This is momentum for us to reform our tax sector," the president said. "We will concentrate on [revising] existing regulations ... to improve our tax system and services."
Indrawati earlier said the expanding taxpayer database will help formalize Indonesia's economy.
"Economic activities that had been hitherto unrecorded, are now recorded. This is good for a more formal economy -- a stronger foundation for Indonesia's economy," she said.
Wellian Wiranto, economist at Oversea-Chinese Banking Corp., agreed, saying "the real game-changing element" of the amnesty initiative is over the longer term as it will serve as "a boon to Indonesia's narrow tax base and less-than-developed financial sector."
Southeast Asia's largest economy has been struggling to boost its tax revenue to finance President Widodo's ambitious infrastructure push, but its tax-to-GDP ratio of around 11% is lower than that of many regional peers -- such as Malaysia, the Philippines, Singapore and Thailand -- which range between 14-17%. OECD members have a tax-to-GDP ratio ranging from 30-50%.
The rupiah had been strengthening over the past few weeks, reaching the 12,900 per dollar level from Tuesday through Thursday after hovering above 13,000 rupiah for months. The stock market, too, has seen an upward trend since the amnesty law was passed in late June.