Indonesian Tax Amnesty Program Set to End Friday

About 10 percent of Indonesians are registered taxpayers and only about one million report their taxes to the government.

That is not a lot for the world’s fourth most populous country. Indonesia is home to almost 260 million people.

The comparatively small number of taxpayers might be one reason for Indonesia’s growing budget deficit.

In the summer of 2016, the government launched a program to increase uncollected tax revenue. It offered to forgive individuals who were late or failed to make tax payments if they paid their taxes.

The amnesty program was aimed at wealthy Indonesians who keep some of their money and investments overseas. It is set to end on March 31.

The program, however, has been criticized by the Organization for Economic Co-operation and Development, Indonesian labor unions and other groups. They say it does not punish tax evaders enough and it is unfair to other taxpayers.

Tax amnesty program could increase revenue

Asmiati Malik is an economics researcher at the University of Birmingham in England. She says the money from the amnesty program could reduce Indonesia’s budget deficit by a large amount.

“It could do so by as much as 70 percent: from $23 billion to $8.2 billion,” she said.

The Jakarta Post newspaper reported earlier this month that up to 4,000 people were signing up for the program every day in March.

The Directorate of Taxation says that more than three million Indonesians became new taxpayers over the past year.

The new taxpayers include business people in the Indonesian Chambers of Commerce and Industry. Many signed up for the tax amnesty program this year.

Yustinus Prastowo is with the Center for Indonesia Taxation Analysis. He says the amnesty program offers good reasons for people to take part and return money from overseas.

“Two huge benefits of the amnesty program for taxpayers now are the low interest rate and the abolition of tax debt,” he said.

If they bring their financial assets back to Indonesia, individuals will be charged between two and 10 percent interest. That is in place of the business or personal income tax rates, which can reach 30 percent.

Those signed up for the program must promise to keep their assets in Indonesia for three years.

Many wealthy Indonesians keep money in places with low taxes, such as nearby Singapore.

Reports say Indonesia has recovered more money from its tax amnesty experiment than other countries, such as India and Germany.

A goal: increase those participating in taxation

“The major issue is that the number of taxpayers who joined the amnesty program is still low,” noted researcher Asmiati Malik. She said about 700,000 people joined the program, but that “is only 2.2 percent of those eligible.”

She thinks many more Indonesians could be added to the list of those being taxed. She called for a tax policy designed to increase participation in both the amnesty program and taxation in general.

Indonesia is expected to join the Organization for Economic Co-operation and Development (OECD) as a full member in September. When it does so, the country will share its tax information internationally. That means it will be able to find out details of Indonesian citizens’ assets in other countries, such as Singapore and the Cayman Islands.

On Monday, the Directorate General of Taxation announced it would give “special attention” to very wealthy Indonesians who had not yet registered for tax amnesty.

But political unrest could hurt efforts to get the wealthy to repatriate money from overseas.

In November and December, there were protests against Jakarta’s governor, a Chinese Christian. Yustinus Prastowo said political and ethnic unrest are reasons investors keep money out of the country.

OECD remains critical

The OECD, however, has been critical of Indonesia’s tax amnesty plan.

Philip Kerfs is an advisor for the OECD’s Centre for Tax Policy and Administration. He told Bloomberg news that amnesty programs are “unlikely to deliver benefits that exceed their true costs.” Kerfs added that these programs might hurt tax revenue over time and efforts to get people to pay taxes.

Groups opposed to the program say it lets Indonesians ignore the law.

I’m Mario Ritter.

Krithika Varagur reported this story for VOA News. Mario Ritter adapted it for Learning English. George Grow was the editor.