The finance ministry previously estimated the policy could boost tax by $4.4 billion this year, a significant amount of extra revenue amid falling commodity prices which have hit Indonesian exporters’ revenue. (SP Photo/Joanito De Saojoao)

Indonesia May Have to Recalculate Spending Plans as Tax Amnesty Debate Delayed by House


FEBRUARY 26, 2016

Jakarta/Bali. Indonesia may have to cut some of the government spending this year as the House of Representatives delayed discussions to deliberate the tax amnesty bill, which was expected to bring additional revenue, until at least April.

Mardiasmo, deputy to the finance minister, on Thursday (26/02) said the government had sought for deliberation of the bill so it can have some fiscal room to spend additional tax revenue. The tax amnesty policy provides lee way for tax evaders, particularly wealthy ones, to declare their wealth and come clean so they can repatriate and shift their investment portfolios from abroad into the country.

The finance ministry previously estimated the policy could boost tax by $4.4 billion this year, a significant amount of extra revenue amid falling commodity prices which have hit Indonesian exporters’ revenue. The bill even set a clause to provide a significant proportion of tax discounts to targeted tax evaders who comply with the policy before March.

House deputy speaker Agus Hermanto told local media on Thursday that the House would delay discussions on the bill, due to opposing opinions against the amnesty plan. Initially, hearings were planned to start from March 1.

Still, the government has established a "plan B," Mardiasmo said. President Joko Widodo has instructed the finance ministry and the state treasurer to re-focus spending and push for efficiency in spending of all ministries and government agencies, he said.

Mardiasmo explained that non-priority programs and official trips that aren’t necessary are first to be axed. He didn’t elaborate futher details, including which ministries and types of spending may be cut as the government struggles to meet its tax collection target.

In the paper, Joko’s administration put Rp 2,095.7 trillion ($156 billion) as total expenditure target for this year’s budget, a 5.6 percent increase from Rp 1,984.1 trillion in the 2015’s revised budget.

Meanwhile, a total Rp 1,822.54 trillion of revenue is expected to be booked this year, of which 84.9 percent, or equivalent to Rp 1,546.66 trillion, will come from taxation collections, including customs and excise.

Impacts of lower tax collections are major for Indonesia as last year, a 16.7 percent tax collection shortfall — of which tax officials attributed it on the falling commodity prices and lower consumptions — sent the state-budget deficit to soaring to 2.53 percent of the nation’s gross domestic product, far past the target of 1.9 percent.

By law, the budget deficit is set at a maximum threshold of 3 percent of GDP.

Nowhere to hide

Sentot Prijanto, senior tax partner at RSM Indonesia, said Indonesia is racing to push forward with its tax amnesty policy and taxpayers will be left with nowhere to hide their wealth after a single global "Automatic Exchange of Information [AEOI]" standard for financial account information is implemented in 2018.

RSM Indonesia is part of one of the world’s biggest public accounting and tax consultants with more than 730 offices in 110 countries.

Sentot said once the system is in place — in which according to the OECD 97 countries, including Indonesia, have pledged for commitments for the implementation by 2017 and 2018 — there will be no more “banking secrecy.”

Sentot said should the tax amnesty manage to be nailed in Indonesia, then taxpayers should take the momentum, as the AEOI will charge heftier penalties than what is offered by the tax amnesty policy.

The AEOI will provide the exchange of financial account information to the tax authorities, which countries comply with, and would enable the discovery of previously undetected tax evasion.

Sentot highlighted that the tax amnesty policy will not accommodate corruptors’ money to be laundered.

He pointed to examples where similar policies had been implemented, including the US, India, Italy and Russia, where tax evaders must pay penalties for not being honest in the calculation of their taxable assets and wealth.

Point of no return?

Yustinus Prastowo, the executive director of Center for Indonesia Taxation Analysis, also dislikes the idea of not pursuing the tax amnesty program.

"Like it or not, the tax amnesty [bill] should go through. It's the point of no return. If we don't pass this bill, the government's credibility may slip and causing taxpayers, who wish to correct themselves to run," he said.

He said the government may have to be forced to choose between axing the spending in the upcoming revised state budget, or to increase its debts.

Askolani, the Finance Ministry's director general for budgeting, was reluctant to answer whether the government will cut spending or increase the debt, but he said “priority spending will go on.”

Economist Faisal Basri, who is with state-university Universitas Indonesia, said should the tax amnesty program be abandoned, then, he said “there is no other way, [government] spending must be cut.”

Still, he said it doesn’t mean that spending for vital projects must to be cut. He pointed to state-owned companies, already the spearhead for some important projects, especially in the infrastructure sector, must be pushed to fund themselves through, for example, selling corporate bonds.

“The government doesn’t need to increase its debt papers,” said Faisal, adding this will help lower public debts. He gave an example that state-airport operator Angkasa Pura II, which has sold up to Rp 2 trillion worth of bonds to help fund its Rp 11 trillion capex.

“But consequently, the project needs to be feasible, otherwise the debt papers won’t sell,” said Faisal.

With regards to the government’s ambition to see a 5.3 percent economic growth this year, the economist said it is unlikely that such target is achievable. Faisal said this year’s growth is likely to be better than last year’s 4.79 percent — the slowest since 2009 — but a 5.2 percent is already a maximum.

Writing by Muhamad Al Azhari