Long-Term Goal is to Strengthen the Economy

President Joko "Jokowi" Widodo has said that the purpose of the newly passed tax amnesty was not just to cover the budget deficit this year. In the long term, it was intended to strengthen the economy through a better taxation system so that in the future tax revenues would be higher.

"The purpose of the tax amnesty is not to cover the budget deficit, in the long term, it is intended to strengthen our economy through a better tax base, so that tax revenues will be higher," the President said in a meeting with a number of economic editors at the State Palace on Thursday.

Finance Minister Bambang PS Brodjonegoro, Agriculture Minister Amran Sulaiman, Presidential chief of staff Teten Masduki and Presidential spokesperson Budi SP attended the meeting.

The President mentioned a number of benefits that could be achieved if Law No. 11/2016 on tax amnesty was properly implemented. These benefits would include a stronger rupiah exchange rate, increased foreign exchange reserves, improved bank liquidity and increased state revenue.

When asked about several issues that still worried potential participants of the tax amnesty, the President said that so far conditions were good and nothing should be feared. Related to the confidentiality of taxpayer data, the President has formed a task force comprising the Development Finance Comptroller and intelligence.

"Confidentiality is guaranteed. The data provided by taxpayers cannot be used for investigation or prosecution, and cannot be given to anyone. Anyone who leaks this data can be taken to court," the President said.

Brodjonegoro said that amid uncertainty in the global economy, proceeds from the tax amnesty would be a new source for economic growth. Several changes would occur as a result of the program, including that data on people's assets overseas would be closer to real conditions as people would have correctly reported their assets and paid taxes.

With overseas funds being brought into Indonesia, private sector debt would fall because the funds would become business capital when repatriated. Foreign ownership of government securities would also decline because the funds currently invested in government bonds were actually owned by Indonesian citizens through companies abroad.

"Another consequence is foreign investment will fall, as it will partly become domestic investments. For instance, foreign direct investment, which has so far been from Singapore, will become domestic investment. So, it will not be because the economy is worsening, but because there is a change in fund status after repatriation," he said.

Meanwhile, regarding the suggestion by some parties that, for improved results, the tax amnesty would be better implemented in 2018, when the Automatic Exchange of Information, or exchange of tax information, would be formally launched, Brodjonegoro said the deal would be only related to the declaration of assets and there was no guarantee that the money would be brought into the country.

"We need fund flows and there should be clarification now. For example, if we postpone infrastructure projects, there will be additional costs in the future," he said.

According to the minister, currently some countries were offering a number of incentives to persuade asset holders to bring their assets to those countries.

Judicial review

Due to the judicial review proposed to the Constitutional Court by a number of organizations on the issuance of Law No. 11/2016 on tax amnesty, the government has formed a special team. In addition to setting up the team, the government also continues to identify strategic projects that could be funded with funds obtained under the tax amnesty.

Coordinating Minister for Economic Affairs Darmin Nasution said that the establishment of a special team had been discussed at the ministerial coordination meeting. 

The team comprises the Finance Ministry and the Ministry of Law and Human Rights, who will be directly in charge of dealing with the judicial review.

Several other ministries, as well as the State Secretariat, will be involved in its monitoring. Members will be taken from first echelon officials of each ministry involved. 

"The request for a judicial review is the right of every citizen. We are ready to conduct focus group discussions and monitor the process. Until now, the request for a judicial review has not been uploaded to the Constitutional Court's website," Darmin said.

Earlier this week, the One Justice Foundation (YSK) and the Struggle for Indonesian Justice Federation (SPKRI), along with four individuals, unveiled their plan to apply to the Constitutional Court for a judicial review of the Tax Amnesty Law. They are challenging Article 11 of the law with 12 reasons. One of these is that the Tax Amnesty Law pardons tax evaders.

At the same time, the Ministry of Finance's secretary general, Hadiyanto, said that the judicial review of the Tax Amnesty Law should not discourage people from taking part in the tax amnesty program. The substance of the law was to provide legal certainty for taxpayers.

The impact of the law is considered appropriate because the proceeds of the tax amnesty could be used for development projects. At present, his office has opened registration for those wanting to benefit from tax amnesty program.

He said that the Finance Ministry was finalizing regulations that would be used to implement the Tax Amnesty Law. At least three draft regulations are being prepared. The entire process is expected to be completed this week.

Source Kompas, Friday, July 15, 2016