Tax Amnesty, Panacea for Economic Ills?

By Satyagraha Jakarta, March 1 (Antara) - It is either the target being too high or sheer bad lock that has caused failure in reaching the tax revenue targets from year to year. There are always causes to explain any failure. Among the causes are the lingering global economic crisis and shrinking prices of primary commodities. The government has launched a series of steps to boost income in taxes such as by expanding tax base and intensification in tax collection. However, the conventional methods apparently have not been effective enough to bring realization closer to target. Now the government comes up with a new scheme - tax amnesty on taxable assets stashed away abroad not yet reported. The tax amnesty is a limited-time opportunity for tax payers both individuals and businesses to settle unpaid taxes of previous periods free of penalty, interest, and collection fees without fear of criminal prosecution. The government offers tax amnesty for a year to scrap tax on interest and administrative sanction unsettled during the previous periods. The tax payers, however, still have to pay the tax on the assets and must report all taxable assets. For that purpose the government has since last year prepared , drafted law on tax amnesty to be proposed to the Parliament. The law is expected to be made effective in 2016. According to data from the Tax Justice Network in 2010, there US$331 billion worth of taxable Indonesian assets parked abroad such as in Singapore . A report issued by the Global Financial Integrity in 2013 placed Indonesia the 7th largest country in the world in amount of illegal funds stashed away in tax haven countries . It said Rp200 trillion worth of fund flowed out illegally from Indonesia abroad every year. With the tax amnesty the government hopes to raise additional fund to strengthen its state budget from the potential taxable assets. The government is concerned about the state budget deficit, which is feared being wider than expected. Finance Minister Bambang Brodjonegoro said realization of state income might be Rp290 trillion below the target of Rp1,822.5 trillion this year. The minister stressed the importance of the tax amnesty as it could give a wider fiscal room for the state budget and increase the number of potential tax payers. Revision of tax revenue target (to be more realistic) in the state budget, therefore, has to await the result of debate on the draft tax amnesty . The tax amnesty bill needs to be passed into law first before revision of the tax revenue target is submitted as a considerable amount of fund is expected from the result of the tax amnesty policy. "We want to be more realistic as effective tax amnesty law would have its impact on state revenues," Bambang said . If the tax amnesty policy failed to boost revenues, and income from the oil and gas sector continued to shrink , the government has to cut spending, he said. "We must have a more accurate calculation of revenues," the minister said, adding a cut in spending had to be made which will certainly result in the economic growth to falter . Another option is to seek more debt to bridge the state budget deficit, facing greater risk amid the economic woes. Amid rumors of postponement by the Parliament, Bambang still expressed optimism that debate on the tax amnesty bill could be concluded as scheduled that it could be effective in the middle of 2016. For development Darussalam, a taxation observer from Danny Darussalam Tax Center, said the tax amnesty policy could contribute to shoring up the government's capital to finance its development programs, overcoming unemployment and poverty. Darussalam said success in the implementation of the policy would depend much on tax payers' obedience, which is still low . He said repatriation of the funds could add to the state revenues to prop up economic development. Based on his estimate, there are 63 percent of tax payers in the country still evading their obligations. The policy, therefore, is expected to bring about tax bases with higher obedience. "The urgency of the policy is to usher in a new era in the country taxation system with tax payers having greater sense of responsibility for meeting their obligations," he said. If the policy could successfully implemented , it would give greater leeway in financing development, eliminating the unending problem of poverty. Executive Director of Center of Indonesia Taxation Analysis (CITA) Yustinus Prastowo said it was just the right time for the government to adopt the tax amnesty policy. Therefore, the government has to be serious in seeking to implement the policy , Yustinus said. Failure would mean greater political cost and the effect on the whole development program of the government would be damaging, he said. "We already have discourses on this since mid last year and now we are right in a point of no return. Failure would bring down the confidence of tax payers in the government , resulting in uncertainties," he said. He said optimization in tax revenues would provide the government with adequate fund to finance its infrastructure projects and social program and reduce dependence on debts. "Only tax amnesty could save the state revenues in short term. Failure of the policy would weigh on government spending especially for the program of social development for the public," he said. In addition repatriation of funds as a result of the tax amnesty policy would significantly contribute to strengthening the country's banking industry, and cutting interest rates. "In long term the government has to be focused on expansion of tax base. If data control and management is good, there would be sustainable increase in tax base and revenues in the coming years," he said. Meanwhile, the government needs to work out a reserve plan, especially if implementation of the tax amnesty policy was not up to expectation, he said, adding failure would add to the host of problems the government is facing. ***3***