Wed, 24 Jun 2015

Indonesia hopes to bring billions of dollars in financial assets parked overseas back home - by pardoning past financial crimes.

A Bill on tax amnesty is expected to be discussed in Parliament this year, said Finance Minister Bambang Brodjonegoro.

"A tax amnesty should not be seen simply as pardoning those who have made mistakes. It is time for Indonesia to put an end to capital flight. We need to bring capital back into (Indonesia)," he told The Jakarta Post.

"We spend our time cursing corruptors, but they are safe in Singapore. It's not fair. The one who benefits from their safety is not us but Singapore," he added.

The idea of a tax amnesty, while not new, has recently gained traction within the Finance Ministry as it looks for ways to raise state revenues.

Mr Bambang, who became Finance Minister late last year, has pledged to boost tax revenues by at least 30 per cent, a target deemed ambitious by economists as the government has netted only a third of all tax revenue with nearly half the year gone.

He has been under pressure to deliver targets set by President Joko Widodo who, as recently as March, still insisted that tax revenues could be raised to help fund large infrastructure projects to speed up his reform plans.

South-east Asia's largest economy recorded 4.7 per cent growth in the first quarter, the slowest pace in six years. Consumption has also fallen, with economists revising downward their annual economic outlook.

While details of the proposed tax amnesty remain sketchy, Mr Bambang said the Bill aims to exempt financial crimes such as corruption, money laundering and tax evasion from criminal charges, on the condition that the individuals move their money back to Indonesia.

The idea of a tax amnesty has been raised since the fall of Suharto, which, together with the Asian financial crisis in the late 1990s, led some of Indonesia's richest as well as many of its conglomerates to shift their assets into offshore accounts. A large chunk of that money remained overseas, most of it in Singapore, according to Mr Bambang.

Last December, management consulting firm McKinsey and Company released a survey of 60 high net worth individuals that projected they would hold a combined US$250 billion (S$334 billion) in overseas assets by next year.

Four-fifths of that, or about US$200 billion, would be held in Singapore, in the form of properties, deposits and stocks, among other things.

Some economists welcome the idea of such an amnesty.

"On a general level, the idea sounds good because it can help ease the pressure on the (weakening) rupiah," said Mandiri Bank economist Andry Asmoro. However, he is doubtful about Mr Bambang's timeline.

"I do not think the Bill can be passed within this year because we are talking about coordination between ministries, deciding on details like who will be pardoned and based on what criteria, and how to plug loopholes," he told The Straits Times.

Other bankers said parliamentary approval for such a Bill could be problematic as some politicians would have vested interests, especially those who themselves have money parked overseas for various reasons.

A tax amnesty Bill is not the only policy instrument being considered to lure money back into the Indonesian economy.

Mr Bambang said earlier this month that Indonesia would lift the luxury tax on most goods to boost more domestic spending.

"If we lower the tax, people will no longer shop in Singapore," he was reported as saying in reference to how Indonesians like to buy branded goods in Singapore, which they then bring back to Indonesia to resell. They do not get caught because of lax supervision, he added.