indonesian president joko widodo launched the tax amnesty program

Without giving too much insight into the details and regulations, Indonesian President Joko Widodo launched the tax amnesty program on Friday (01/07) during a speech in front of hundreds of businessmen and officials at Indonesia's tax office headquarters in Jakarta. The tax amnesty program - approved by the House of Representatives in late June - is a strategy to boost state tax income by (temporarily) granting amnesty as well as offering attractive incentives to (former) tax evaders. In return, the tax dodgers have to declare and (if wanted) repatriate their offshore assets into Indonesia.

The tax amnesty program of Indonesia is designed to run for nine months (from July 2016 to March 2017) and is targeted to cause the repatriation of trillions of rupiah worth of offshore assets into Indonesia, Southeast Asia's largest economy. The Indonesian government stated it would like to see the repatriation of IDR 1,000 trillion (approx. USD $76 billion) that is currently stashed in offshore tax havens by Indonesians. In total, the government assumes that some IDR 4,000 trillion is secretly stashed abroad. As Indonesian markets, government institutions and most businesses are closed for the Idul Fitri holiday (4 - 8 July 2016), Indonesia's tax amnesty program is set to start in the week of 11 July.

According to President Widodo, the tax amnesty program is an important tool to resolve Indonesia's ongoing tax issues (namely low tax revenue) and to boost the economy as a whole as the government is able to generate much-needed funds that can be used to invest in the structural development of Indonesia (such as infrastructure and social development). Infrastructure development, for example, is estimated to require some IDR 4,900 trillion (approx. USD $371 billion) worth of funds in the years ahead.

Widodo added that the program should not be seen as an effort of the government to pardon tax corruptors or those who have been engaged in money laundering. Instead, the government targets to pardon those businessmen who have stashed part of their wealth abroad, in the so-called tax havens. In fact, last month Indonesian Finance Minister Bambang Brodjonegoro said the Indonesian government is considering to create its own tax haven in Indonesia, which would allow residents and non-residents to set up shell companies for their offshore investment in a low-tax jurisdiction.

Although details remain scarce, a Finance Ministry official said the Indonesian tax office will set up information centers at Indonesian embassies in those locations that are frequently used by Indonesians to keep offshore assets, including Singapore, Hong Kong, and London.

Previously, the Indonesian government had already said it was preparing investment instruments to absorb the expected excess liquidity that is caused by the potentially huge inflow of assets into Indonesia. Funds that are repatriated through the tax amnesty program are required to remain in Indonesia for at least three years.