Thu, 08 Jul 2010

From: Reuters

By Gde Anugrah Arka
JAKARTA, July 8 (Reuters) - Indonesia plans to issue new rules this year that will require companies to report where and in which banks they expect to put their export earnings, as it seeks to monitor capital flows and improve tax collection.

The government sees export earnings as a more stable source of foreign exchange than short-term speculative inflows, which have sent the stock market .JKSE, bond prices and the rupiah currency IDR= soaring in the past year.

Indonesia worries hot money could threaten financial stability, and the plan follows measures by its central bank last month aimed at channeling strong capital inflows away from short-term investments. [ID:nJAK210755] [ID:nTOE65T062].

"This is aimed at helping track foreign exchange flows, espcially those related to exports," said Evi Suhartantyo, a spokesman at the finance ministry's customs and excise office.

"Our aim in requiring them to fill in the names of banks in the export documents is related to payments of export duties."

The move comes as the government takes on resources firms such as Singapore-listed palm oil producer Wilmar (WLIL.SI) and Indonesiam coal producer Bumi Resources (BUMI.JK) over alleged unpaid taxes, with improving tax collection a priority for the country's finance minister.

"We expect to make the revised documents available (to firms) in December," Susiwijono Moegiarso, a director at the customs office, told Reuters.

Exports from firms such as planter PT Astra Agro Lestari Tbk (AALI.JK), tin miner PT Timah (TINS.JK) and Freeport-McMoRan Copper & Gold Inc (FCX.N) have been driving Southeast Asia's largest economy in recent years amid a boom in commodity prices.

But tax collection is very low, with the tax-to-GDP ratio at around 11 percent, versus about 30 percent in some European countries such as Belgium, according to World Bank data, and Western governments have also been cracking down on tax evasion.

Economist Eric Alexander Sugandi at Standard Chartered said the amount of unreported export earnings may reach billions of dollars annually given that there are numerous seaports in the sprawling country that are not easy to monitor.

The International Monetary Fund said last month the government needs to raise more tax to put its finances on a more stable footing and to improve inadequate infrastructure, steps that could help it obtain an investment-grade sovereign credit rating.

But in a country where graft is rampant, making the law stick against the power of vested interests may be a challenge.

"How are the authorities going to monitor whether the information given by exporters is correct? Exporters may open their major bank accounts offshore and have only minor accounts onshore, as they may be worried about having to pay higher tax for putting most of their funds onshore," said Juniman, chief economist at Bank Internasional Indonesia.

"There are a lot of good regulations in Indonesia, the issue is more to do with the weak enforcement."

Some Indonesian politicians and economists have long suggested authorities force firms to park export earnings at home for a certain period of time, especially if the local currency is under selling pressure.

Wealthy Indonesians are a key source of clients for private banks in neighbouring Singapore such as UBS (UBSN.VX).