Costly initiatives: Passengers at a train station in Jakarta. Officials say a rise in the country’s VAT rate from 11% to 12% is now likely to be postponed. — AFP
JAKARTA: A lawmaker has defended a new tax amnesty as a way to make up for lower-than-planned state revenue from value added tax (VAT), given that a VAT hike initially meant to take effect on Jan 1 will probably be pushed back.
House of Representatives Legislative Body (Baleg) chairman Bob Hasan told The Jakarta Post on Tuesday that the VAT increase to 12% from 11% at present “may be postponed” and that the planned tax amnesty was the solution to cover for the forgone increase in revenue.
“The tax amnesty can hopefully help balance the cost of the government’s short and medium-term programmes,” said Bob, before mentioning President Prabowo Subianto ’s plans to provide free meals for millions of school children and achieve food and energy self-sufficiency as examples of the administration’s policy priorities.
Given the programmes’ high costs, the government has to ramp up revenue to maintain a healthy state budget, such as by increasing tax collection.
The VAT hike was supposed to kick in at the start of the year and bring in an extra 70 trillion rupiah to 80 billion rupiah or about US$4.4bil for the state coffers, but the plan has been met with broad rejection.
A delay of the VAT increase is now deemed likely, with National Economic Council head Luhut Pandjaitan saying on Wednesday that it might be pushed back by two or three months, as the government sought to roll out social aid first.
This forces the government to look for alternative ways to increase revenue, which is where Bob sees the tax amnesty fitting in.
The idea behind a tax amnesty is to boost revenue by encouraging recalcitrant taxpayers to report previously undeclared assets in return for a guarantee that no legal action would be taken against them for not having come clean earlier and that the case would be kept confidential.
The House of Representatives has included the tax amnesty draft in the National Legislation Programme (Prolegnas), which Bob said indicated that “it is likely to become law in 2025”. That would become the third tax amnesty offered within a decade.
The first tax amnesty, conducted in 2016, uncovered more than 4.8 quadrillion rupiah in hidden assets and yielded more than 114 trillion rupiah in tax liabilities. A second tax amnesty in 2022 brought to the surface a mere 594 trillion rupiah worth of hidden assets.
Following the second amnesty, Finance Minister Sri Mulyani Indrawati, who kept her post under the current administration, vowed that the government would not offer any more tax amnesties.
The Finance Ministry has not made any public statements about the latest amnesty plan, and the ministry’s spokesperson, Deni Surjantoro, declined to comment when contacted by the Post.
Dwi Astuti, a director at the Taxation Directorate General, told the Post on Tuesday: “Regarding the tax amnesty draft, we will examine the plan closely.”
Bob said the incoming tax amnesty was an initiative from House Commission XI, which oversees financial affairs.
National Awakening Party lawmaker Hanif Dhakiri, a member of Commission XI, told the Post on Tuesday that the tax amnesty draft “has long been in the queue in Baleg”.
He admitted that the policy might risk further non-compliance and weaken public confidence in the law.
“Don’t let the tax amnesty create inequality or the perception that non-compliance can be forgiven without consequences. This could undermine public trust in the tax system,” said Hanif in a statement sent to the Post on Wednesday.
However, he said the draft had an urgent purpose, namely jacking up state revenue by reeling in funds that have been sitting outside the state’s financial system.
“If, after a review, it is found that the benefits are not optimal or even harmful, the discussion can be postponed or the draft can be removed from the Prolegnas. If the benefits are big, we surely will proceed with it,” said Hanif.
Centre of Economics and Law Studies executive director Bhima Yudhistira told the Post on Tuesday that the policy was “a blunder”, particularly if the aim was to increase tax revenue, which would bring about “moral hazard”.
“It’s been proven that the tax ratio did not improve after the first and second amnesties. What’s the impact of a tax amnesty? Obviously none. Frequent tax forgiveness will instead bring down compliance by rich people and corporations. Tax evaders will surely assume that there will be more amnesties after the third one,” said Bhima. — The Jakarta Post/ANN
