Law No. 11/2016 regarding tax amnesty carries a positive impact for banks because the repatriation of funds, as mandated in the legislation, will increase liquidity. The repatriation will also come at the right time as the loan to deposit ratio (LDR) in the Indonesian banking sector currently stands at 89.5 percent.

The additional liquidity from the repatriation of funds kept overseas by Indonesian citizens will loosen the LDR. PT Permata Bank economist Josua Pardede told Kompas on Monday (11/7) that potential repatriated funds could reach Rp 560 trillion (US$42.6 billion).

The repatriation will increase the lenders' third party funds (DPK), which in April stood at Rp 4,478 trillion. "With the third party fund increase, the lenders' intermediation function will improve as the loan to deposit ratio will decrease to around 86-88 percent by the end of this year," he said.

With improving liquidity, full year credit growth could hit 12-14 percent by the end of 2016.

Josua added that the banking sector's intermediation function would improve, thus it would be able to support finance in the real sector, which is expected to improve in the second half of this year. Credit growth is estimated to reach 11-13 percent.

Josua is optimistic that the tax amnesty program will run well this year given the response from market players, particularly from the financial industry, which indicated that the tax amnesty would have the potential to boost state income and repatriated funds.

Those who are interested in participating in the tax amnesty program are attracted to the low rate of tax to be imposed. "I think Bank Indonesia's assumption of Rp 560 trillion [repatriated funds] is relevant considering the automatic exchange of information agreement that will become effective in 2018. The tax amnesty will be very good momentum," he said.

Therefore, Bank Indonesia and the banking sector need to prepare instruments to accommodate the repatriated funds. Bank Indonesia is preparing to issue short-term foreign currency convertible bonds and negotiable certificates of deposit (NCD).

A foreign exchange-denominated instrument could be an alternative so that the repatriated funds are not easily withdrawn from the banks. The government could also issue foreign exchange bonds to serve as a source of financing for productive posts, such as infrastructure development and investment.

Judicial review

Bahana Securities Head of Corporate Strategy and Research Harry Su said the tax amnesty program would continue despite some groups taking the Tax Amnesty Law to the Constitutional Court for a judicial review.

"I think the tax amnesty program will keep running. Indonesia is not the only country to run such a program," Harry said.

He said he hoped that the judicial review process at the Constitutional Court would not affect the tax amnesty program. The One Justice Foundation (YSK), Struggle for Indonesian Justice Federation (SPKRI) and four other civil groups filed a judicial review on Wednesday, July 13. YSK chairman Sugeng Teguh Santoso said his group would soon complete the documents for the judicial review process, in which it would submit 11 articles in the law for review based on 12 reasons. One reason was that the Tax Amnesty Law allowed for tax evaders. The law also did not include the principle of transparency, so it did not promote equality before the law, particularly regarding tax discipline.

Constitutional Court head Arief Hidayat said there was no timeframe or deadline for the judicial review of any law according to the court's internal rules. However, the Tax Amnesty Law review was seen as urgent.

House of Representatives Commission XI chairman Ahmadi Noor Supit of the Golkar Party faction said the request for a judicial review was a consequence of a particular law, which was considered as going against a higher legislation or sense of justice. However, the Tax Amnesty Law should be seen as a short- and long-term solution to improve the economy.

"When the House was discussing this law, we knew there were several problems. But after the government convinced us that the law would be mean a boost to state income, we agreed to give it a chance," Supit said.

A member of the House special committee discussing the Tax Amnesty Law, Ecky Awal Muharam of the Prosperous Justice Party faction, said a judicial review was the constitutional right of every citizen.

However, House Commission XI member, Heri Gunawan of the Gerindra Party faction, doubted the effectiveness of the judicial review of the Tax Amnesty Law given that the law would be effective until March 31, 2017 only. "It is fine for certain groups to ask for a judicial review. But this law will be effective for a short period of time. I don't think the time [for the judicial review process] will be sufficient," he said.