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Indonesia introduces tax amnesty in bid to boost economy

by June 28, 2016 General

June 29, 2016, 12:44 am TWN

JAKARTA — Indonesia on Tuesday launched a tax amnesty in a bid to give Southeast Asia’s top economy a multi-billion-U.S.-dollar boost, defying criticism the move will let evaders off the hook.

The government believes the amnesty can bring in 165 trillion rupiah (US$12.4 billion) of additional revenue this year by offering low rates to those who come forward to declare untaxed wealth.

Wealthy Indonesians have long chosen to stash billions of dollars abroad, particularly in neighboring city-state Singapore, to keep it out of reach of the taxman.

Parliament approved a bill finally bringing the amnesty into effect after months of wrangling, with all but one of the 10 parties in the legislature backing the controversial measure.

Finance Minister Bambang Brodjonegoro said he hoped capital owned by Indonesians currently parked overseas would now “enter Indonesia’s financial system and boost economic growth” during the nine-month amnesty.

President Joko Widodo is desperate for extra money to fund infrastructure projects as investment falls due to a slowing global economy, and the government believes improving its historically poor tax revenues will help.

Only 30 million Indonesians are registered taxpayers out of 90 million registered workers, and the country collects less tax as a proportion of GDP than many countries in Southeast Asia.

But the bill has faced criticism from political parties and among the public who believe it means tax evaders will go unpunished, and that it is unfair to those who have honestly paid their taxes.

“The tax amnesty bill is extraordinarily offensive to our sense of justice — it turns criminals into good guys,” lawmaker Yandri Susanto of National Mandate Party told parliament.

His party eventually backed the bill. The Prosperous Justice Party, an Islamist party, was the only one in parliament that did not support the measure.

People who come forward with their untaxed wealth at home and abroad will be offered a rate of between 2 percent and 10 percent, far below the 30 percent top income tax rate for individuals.

Under the amnesty, those wishing to declare their untaxed wealth will have until March 2017 to do so. An individual can get better rates by reporting earlier, and by agreeing to send their money back to Indonesia.

Indonesian stocks closed up 0.95 percent after the amnesty bill was passed, while the rupiah strengthened 1.2 percent to 13,188 to the U.S. dollar.

Analysts broadly welcomed the measure.

“This law is a potential game-changer, a boost to tax receipts immediately and to tax base in the long run,” said Wellian Wiranto, an economist from Singapore-based OCBC Bank.