Indonesia's Tax Amnesty Program Falls Short of Goals

Today marks the end of the national tax amnesty program, and it's already fallen short of many collection targets set by the Indonesian government. The program was to serve as the financial backbone of President Joko Widodo's plan to build more infrastructure around the country, which has now been thrown into doubt.

An estimated Rp 4,000 trillion ($303 billion USD) of Indonesian income is stashed abroad in tax havens. This has caused the Indonesian government to miss out on crucial tax revenue from many of its ultra-rich citizens. To help rein-in the tax dodgers, the president, a man popularly known as Jokowi, announced the start of a new tax amnesty program in July last year.

The program was supposed to be a chance for tax dodges to repatriate their funds without fear of prosecution. During the past nine months, they were allowed to declare unregistered assets for a small penalty and immunity from prosecution.

However, only Rp 146 trillion ($10.9 million USD) has been collected by the program, far below the targeted Rp 1,000 trillion ($75 million USD) that the government planned to repatriate. Most of the cash and assets that were registered during the amnesty program came from Singapore, the Cayman Islands, and Hong Kong.

"We are doing the best we can, there are many factors that affect the tax amnesty [program], not all targets were met," Hestu Yoga Saksama, spokesperson to the Directorate General of Tax told the Indonesian news site Tempo.

President Jokowi's sprawling infrastructure plan, estimated at Rp 4,900 trillion (USD $372.4 billion), was supposed to pull some of it's budget from tax revenue generated by the amnesty program. But even if all the funds raked in by tax amnesty are put towards the program, the government will only be able to cover 3 percent of the total cost.

Lack of easy access to bank data has been one of the biggest challenges the government faced during the amnesty program, said Darussalam, a tax analyst at the University of Indonesia.

"Access to bank accounts should be automatic, not by request," Darussalam said. "President Jokowi's new law is key here, which is aimed at two objectives. Sharing information with partner nations overseas and easy access to banking data for the domestic needs of the country."

It's pretty common to not pay your taxes in Indonesia. In 2014, less than 1 million of the country's 255 million people actually paid their taxes. While the tax amnesty failed to meet it's somewhat lofty collection goals, it did help to spark awareness among the public that taxes need to be paid.

But the program failed to attract new taxpayers into the system, only 44,232 out of 832,631 amnesty participants never paid their taxes before. The majority of those who took advantage of amnesty were declaring offshore assets. There are some bright spots in the tax recovery program. The government handed out Rp 165 trillion ($12.3 million USD) in fines, and collected 73.9 percent of those fines as of today.

Heavy punishments await those caught hiding assets after the amnesty period. Those who return assets after today face a 30 percent tariff on anything repatriated to Indonesia and a 200 percent higher penalty on any assets uncovered by the government.

"Post tax amnesty is a period of strict law enforcement, the targets will be unlawful tax evaders, the ones who declined to participate in the amnesty," Darussalam said.