It may be the world’s most successful tax amnesty, but when you have the number of tax dodgers that Indonesia has, it’s just a drop in the ocean.
More than 436,000 people have participated in Indonesia’s tax amnesty, unearthing assets worth S$379 billion. As a percentage of GDP that’s triple what Chile managed last year and six times what Italy’s yielded in 2014. But one of Indonesia’s amnesty’s architects says there’s still a long way to go if policy makers in Southeast Asia’s biggest economy are serious about getting their countrymen to pay their fair share.
“It sounds like a huge number, but for me it’s small…for Indonesia’s size,” said Suahasil Nazara, head of fiscal policy at the Ministry of Finance, referring to the number of tax amnesty participants.
“We still have to work hard.”
With a working population of more than 118 million people a little more than a quarter are registered to pay taxes. If that weren’t bad enough the number of people who will actually pay what they owe this year will total about 1.5 million, Mr Nazara says. That’s an improvement on previous years but still a tiny tax base on which to build out the infrastructure and services that the country desperately needs.
“We need to build trust between taxpayers and the tax system,” Mr Nazara says.
“We have to continue with tax reform.”
That won’t be easy. Indonesians loath paying taxes, in part, because the process is cumbersome. Additionally, once they pay the taxes there’s no guarantee the money won’t go missing or that the taxman won’t hit them up again unfairly. As a result Indonesia collects taxes equivalent of less than 11% of its GDP. That’s compared with more than 15% for Thailand.
“If you want to avoid an audit in Indonesia never ask for a (tax) refund,” says Rabin Hattari, a Public Sector Economist, with the Asian Development Bank.
“Indonesians don’t feel their taxes are used properly and they don’t trust tax officials. It’s a big problem.”
To be sure the government of President of Joko Widodo and some local governments are improving transparency and removing headaches associated with Indonesia’s notoriously fickle and inefficient bureaucracy.
Taxes may be filed online. Small steps like those have helped Indonesia outperform some of its peers here. Indonesia now ranks 104th out of 190 countries, according to the “Paying Taxes 2017” index this month by Pricewaterhouse Coopers and the World Bank -- up 44 places from last year.
There is still some way to go. According to the report, the average Indonesian corporate tax filing can take 221 hours and require 43 separate payments. This is compared with corporate taxes in Singapore, which can take 67 hours and require five separate payments.
“Indonesia has to make it easier to pay taxes,” Mr Hattari says.
Casting the tax net wider would make it easier for Indonesia’s central and local government to lower value-added, corporate, and individual tax rates when they come up for review early next year, Mr Nazara says.
Raising taxes risks slamming the brakes onto an economy that looks unlikely to accelerate much faster than the 5% or so expected this year, Mr Nazara says.
There’s little time to lose. Spending on infrastructure is slated to jump about 30% to more than S$41 billion this year. Windfall gains from big reforms such as scraping the fuel subsidies have mostly been gobbled up.
As for the tax amnesty, which wraps up in March, it has repatriated just shy of $11 billion. Uncertainty surrounding the election of Donald Trump and the indictment of Jakarta’s reformist governor, Basuki Purnama may prompt some investors to keep capital out of Indonesia, analysts say.
For now the amnesty offers a better snap shot of asset holdings which may help formulate better tax policy rather than to be used to help hit up tax payers later, Mr Nazara said.
“This should be good information for our (tax) review.”