Indonesia approves tax amnesty bill to fund budget gap

The Indonesian government has approved a tax amnesty bill that is aimed at reducing the widening budget gap as it steps up infrastructure spending to spur economic growth. The government plans to draw billions of dollars needed to fund the cause.

Lawmakers voted in favor of the bill during a plenary session in Jakarta on Tuesday, among the final steps before it becomes law. Individuals who repatriate undeclared assets held abroad will face a penalty of 2 percent to 5 percent, according to the bill. However, a penalty of 4 to 10 percent will be levied on individuals who report assets held abroad but decline to repatriate the funds. Participants must keep the funds onshore for three years.

The central bank estimates the tax program which will be implemented in July and run for a maximum of nine months, to help draw 560 trillion rupiah (USD42.5 billion) of funds back to the country. Almost 30 percent, or 165 trillion rupiah, will flow to the government, Bloomberg reported, citing, Finance Minister Bambang Brodjonegoro.

"The first benefit from the tax amnesty would be the potential for capital inflows, which will really help the economy that’s currently seeking new sources of growth after a period of low commodity prices," the FM said in an interaction with reporters.

Indonesia’s rupiah and equities gained after the decision. The currency strengthened 1.2 percent to 13,188 against the dollar as of 4 p.m. in Jakarta, the highest level since May 3, according to prices from local banks. The Jakarta Composite Index of shares rose 1 percent.

"Tax amnesty could bring the much needed extra fiscal revenue for the government, but it is unlikely to completely remove the need to widen budget deficits and/or cut spending this year," said Santitarn Sathirathai, Economist, Credit Suisse AG, Singapore, in a note to clients.