After months of prolonged debate and considerable controversy, the House of Representatives (DPR) finally approved the Government-initiated Tax Amnesty Bill during a plenary session on Tuesday, June 28. The Tax Amnesty (the “Amnesty”) was proposed by the Government as a stop-gap measure to shore up declining tax revenues amid the ongoing economic downturn. The Government hopes that up to Rp 165 trillion will be repatriated as a result of the Amnesty, although the figures vary wildly depending on which government department is doing the talking. This has led many economists and commentators to question whether the government is actually in possession of accurate data as to the true amount of Indonesian funds parked overseas that would come within the scope of the Amnesty.
The new legislation will come into effect upon its signing by the President and publication in the Official Gazette.
In this Client Update, we take a look at the key features of the Amnesty.
3. AHP Commentary
The Government finds itself in a serious predicament on the fiscal front. The economy is showing few signs of recovery, the beneficial effects of the economic reform program have yet to kick in, infrastructure spending is less than expected and household spending remains subdued. Meanwhile, the assumptions contained in the 2016 Supplementary Budget, which was approved by DPR on the same day as the Amnesty, have been almost universally criticized as being unrealistic. The Government appears to be pinning its hopes on windfall revenues from the Amnesty in order to keep the budget deficit in check. While there appear to be good grounds for believing hat the Amnesty will indeed result in a significant repatriation of funds, and thereby provide a revenue boost for the Government, we are not convinced that the amounts involved will be anywhere near as vast as the Government appears to believe.
Therefore, in order to maximize the fund repatriations, the Government will need to pull out all the stops to ensure that the Amnesty is applied efficiently and impartially.
The need to maximize the effectiveness of the Amnesty is further reinforced by the reality that whatever windfall gains accrue to the Government in the coming months will not be repeated. At the same time, the current headwinds are set to keep buffeting the economy for quite some time to come, and may even strengthen if the fallout from Brexit worsens.
AHP Client Alert is a publication of Assegaf Hamzah & Partners. It brings an overview of selected Indonesian laws and regulations to the attention of clients but is not intended to be viewed or relied upon as legal advice. Clients should seek advice of qualified Indonesian legal practitioners with respect to the precise effect of the laws and regulations referred to in AHP Client Alert. Whilst care has been taken in the preparation of AHP Client Alert, no warranty is given as to the accuracy of the information it contains and no liability is accepted for any statement, opinion, error or omission.