On 2 Jun 2016, a draft revision to the FY2016 Budget was submitted by the Indonesia Government. In the revision, a proposed tax amnesty is assumed.

This is potentially a huge shot in the arm for Indonesia as the implementation of tax amnesty would add trillions of Rupiah to state coffers amid the ongoing effort to plug the widening budget deficits. Governor of Bank Indonesia, Agus Martowardojo, has stated that the tax amnesty would potentially garner up to Rp45.7tn in additional tax revenue and lead to repatriated funds of up to Rp560tn.

We share three thoughts on the tax amnesty bill below:

  1. Tax Amnesty bill

People who have hidden assets abroad will face no criminal prosecution or penalties, other than a flat fee of between 1% and 6% of the value of the assets in question. This also depends on how quickly they declare their stash and whether they repatriate it. (The 1% is for those who bring their money home immediately; 6% for those who take more than nine months to admit to hiding assets and keep them abroad.)

Tariffs are paid based on difference of net asset value:

Tax Period
2% first 3 months after law is issued
4% 4-6 months after law is issued
6% 7th months onwards up to 31 Dec 2016

For overseas assets, if repatriated, tariffs are:

Tax Period
1% first 3 months after law is issued
2% 4-6 months after law is issued
3% 7th months onwards up to 31 Dec 2016


       2. 14 June is D-Day

There have been many false starts to the tax amnesty programme. But each false start brings us closer to the day of the tax amnesty bill approval. 14 June is the next anticipated date where the Parliament is expected to be put to vote for the bill. If it passes, the Government expects that the tax amnesty bill to be implemented in 2H2016. Current market expectations have been subdued, acutely aware of the difficulty of the tax amnesty bill passing through the Indonesia legislature.

       3. Stimulus to the Indonesia economy

Since the Asian Financial crisis in 1998, many Indonesians safe-keep their monies overseas, with more than US$900 bln estimated to have been stashed overseas. These monies were also attracted by lower taxes and lucrative investment opportunities outside Indonesia.

But no longer, it seems. With compelling Indonesia demographics and rising economic potential, Indonesians are finding it more enticing to repatriate the monies back home.

The tax amnesty may just provide a catalyst for this to happen, and trigger capital inflow to the shores of Indonesia. The flood of monies will also be the equivalent of quasi fiscal stimulus into physical infrastructure and properties. Banks will also be the leading channel where the surge of monies will come through. Thus, we expect the property, banks and construction sector to be among the biggest beneficiaries.

The stock market has recently been range-bound with little expectations of the tax amnesty bill approval. Jakarta Composite Index (JCI) has risen by 4% since the recent bottom reached in 19 May 2016. Bond yields also remain stable.

One-year chart of Jakarta Composite Index (JCI)


Source: Bloomberg

Benjamin Franklin famously remarked that there were two things certain in life: death and taxes. Another thing is certain. If the tax amnesty bill is passed, the returning monies will certainly stimulate the Indonesia economy. And possibly trigger a substantial rally in Indonesia equities.

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