Indonesia expands tax amnesty to draw funds

A worker collecting latex in West Java in May. Weakness in the exports of rubber and palm oil is weighing on Indonesia's revenue, and the country's first sukuk sale is a way to make up for the shortfall.
A worker collecting latex in West Java in May. Weakness in the exports of rubber and palm oil is weighing on Indonesia's revenue, and the country's first sukuk sale is a way to make up for the shortfall.PHOTO: REUTERS

Scheme seen wooing back $57b in assets kept overseas and boosting tax coffers for infrastructure projects

JAKARTA • For Indonesians seeking to bring back billions of dollars stashed overseas, the government just opened up more avenues to park their funds under a tax amnesty plan.

Individuals who sign up to the amnesty will be allowed to invest in assets such as gold, property and infrastructure projects, according to the Finance Ministry.

Participants can also move funds between approved assets before a three-year holding period ends, the ministry said in rules posted on its website on Wednesday.

The amnesty programme may bring back about 560 trillion rupiah (S$57.4 billion) in assets stashed offshore, according to Bank Indonesia. President Joko Widodo aims to use the taxes from the plan to pay for an ambitious infrastructure agenda and boost economic growth. 

More avenues to park the repatriated funds may encourage greater participation and help Mr Widodo partly plug a shortfall in tax revenue as the nation grapples with a slowdown in China and low commodity prices.

"I see it as a positive development that will create a more conducive environment by allowing people to switch between asset classes, switch between things they can hold even though they still have to keep it in Indonesia for three years," said Mr Wellian Wiranto, an economist at OCBC in Singapore.

Participants may also withdraw returns from investments made using repatriated funds before the holding period ends, as long as the original amount is kept with gateway lenders, according to the Finance Ministry.

Indonesia also plans to sell its first Islamic savings bonds, or sukuk, this month, as the government innovates to plug a US$16.7 billion (S$22.4 billion) revenue shortfall caused by the global commodity slump.

The Finance Ministry will issue two-year syariah-compliant debt from Aug 22 to Sept 2, targeted at individual investors who are now placing excess cash in bank deposits, said Mr Suminto, the Islamic financing director at the budget financing and risk management office.

The notes will be available at a minimum investment of two million rupiah and the sale will raise about 3.9 trillion rupiah, he said.

The sukuk sale represents an attempt by the government to tap the nation's growing pool of US$14 billion in Islamic deposits, said Mr Abas A. Jalil, chief executive officer of consultancy Amanah Capital Group.

The sukuk, which are not tradable, will be structured according to the Wakalah or agency principle, Mr Suminto said.

The yield will be fixed on Aug 19 and investors will be allowed to redeem up to half of the sum invested after one year, he said.

"Our main goal is to diversify our investor base and reach people who wouldn't otherwise invest in government securities," Mr Suminto said.

"People who buy savings sukuk may put their money in deposits and want somewhere safe to place them in the long term."

A prolonged bout of weakness in Indonesia's key exports of crude palm oil and rubber is weighing on fiscal revenue.

Last week, the government increased the 2016 deficit target to 2.5 per cent of gross domestic product from 2.35 per cent and said it would need to raise an additional 17 trillion rupiah to cover the shortfall.

"The government's challenge is always how to reach new investors so that it doesn't overwhelm their existing investors with too much issuance," said head of rates trading at Bank Negara Indonesia Ikhwani Fauzana.

"This savings sukuk will be a good addition."

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A version of this article appeared in the print edition of The Straits Times on August 12, 2016, with the headline 'Indonesia expands tax amnesty to draw funds'. Print Edition | Subscribe