Indonesia Tax Amnesty to Lift Budget Revenue as Growth Slows

BY :ANNA ANDRIANOVA & CHRIS BRUMMITT

MAY 04, 2015

Jakarta. Indonesia is introducing a tax amnesty this month to boost revenues as slowing economic growth puts pressure on the government to increase spending, Finance Minister Bambang Brodjonegoro said.

The amnesty will last until the end of the year and allows citizens to avoid penalties if they pay five years of unpaid taxes, Bambang told Bloomberg in an interview in the Azerbaijan capital of Baku on Sunday. The government will use electronic invoices to avoid fraud as part of wider tax reforms, he said.

Indonesian President Joko “Jokowi” Widodo needs to boost tax collection to fulfill election pledges to improve the nation’s infrastructure and reach 7 percent economic growth. Tax collection rates for the first three months of this year were slow and there could be a shortfall for this year’s budget, Bambang said.

“We ask everybody to pay their tax gap of the last five years because most of them will have some tax gap,‘‘ Bambang said.

‘‘We already prepare for any shortfall so what I have to ensure is that the budget is ok.’’

Jokowi is targeting a tax-to-GDP ratio of 16 percent, up from 12 percent in 2012. Only 4 million Indonesians out of a total population of 250 million currently pay tax, Jokowi said in an interview in February.

‘‘This is a positive plan,’’ said Andry Asmoro, an economist at Bank Mandiri. ‘‘On the revenue side the government still faces challenges. It doesn’t want to increase tax rates, so an amnesty is a way of deepening the base.’’

Budget deficit

Construction and infrastructure stocks may still benefit from the government’s plans to boost spending, even though there is a risk it may not meet its tax revenue growth target for this year, Katarina Setiawan, head of research at Manulife Aset Manajemen Indonesia, told reporters in Jakarta.

The government won’t tap markets to cover any budget shortfall, and instead will look to bilateral or multilateral borrowing, Bambang said.

It will try to maintain a budget deficit of 1.9 percent, even though increasing that to as much as 2.3 percent would be ‘‘still ok”, Bambang said.

Indonesia’s growth probably fell short of 5 percent last quarter for the second time in a year, according to a Bloomberg survey of economists.

Southeast Asia’s largest economy is now aiming for economic growth of between 5.4 percent and 5.7 percent this year, Bambang said, compared with a target in its annual budget for 5.7 percent. The economy grew 5.02 percent in 2014.

More, quicker

Low commodity prices and consumer spending means lifting growth is dependent on investment and increasing government expenditure, said Bambang . He said the government had to spend “more and quicker” to fight the slowdown, with infrastructure spending expected to kick in from this month.

Curbing trade and budget deficits will help manage the risks of volatility in the rupiah when the US Federal Reserve raises interest rates, he said.

The government hopes for a current-account deficit in a range of 2.5 percent to 2.9 percent of gross domestic product this year, he said, compared to a level of 3 percent in 2014.

“At least it has to be better than last year,” Bambang said. “We have to show the progress.”

Bloomberg

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