The first phase of Indonesia’s tax amnesty program ended on 30th September. It was considered as a success because in a short span of 3 months, IDR3604tn (~USD273bn based on 3-month average rate of IDR13180/USD) of assets were declared, leading to IDR97.2tn of tax revenue collection. That is almost 59% of the targeted IDR165tn tax collection projected by the former Finance Minister, which was widely deemed as overly optimistic. In the first program, participation of tycoons like Anthoni Salim (Indofood Group) and James Riady (Lippo Group) have shored up confidence and set good examples for others to follow. As the program moves into second and third phases, officials are said to be focusing their effort on SMEs in helping them to rectify non-compliance. A recap of the program’s timeline:
How successful is Indonesia’s tax amnesty program? To answer that question, we looked at other countries’ tax amnesty programs in the past:
In the case of Indonesia, IDR97.2tn (~USD7.37bn) tax revenue is equivalent to 0.86% of 2015 GDP, already one of the most successful programs by that metric. The program is still running!

We try to estimate the significance of the IDR3600tn assets, of which IDR2650tn is local assets and IDR950tn is offshore assets, declared. Accordingly to official figures, 14% of offshore assets was repatriated, which means total assets brought back into the Indonesian system was IDR2783tn. Assuming a moderate 5% return on asset and 25% tax rate on the returns generated, Indonesia would collect USD2.64bn tax revenue every year, equivalent to 0.31% of GDP! It will be even more significant if we were to take into account the multiplier effect such as more jobs created by more investments, and more private consumption due to higher employment and business activities.

While the result has been encouraging so far, we think there are more work to be done. After all, tax collection from this program is only one-off, more importantly is to ensure tax compliance going forward. Indonesia’s tax revenue-to-GDP ratio was only 10.7% in 2015. As a comparison, that ratio in low tax rate countries such as Singapore and Malaysia was 14.2% and 15.5% respectively. In high tax rate countries like Australia and US, the ratio was 25.8% and 26.9% respectively.

Will the government embark on tax reforms to make taxation more competitive and transparent? Will authorities clean up the databases and carry out law enforcement to ensure ongoing tax compliance? Will government ensure policy stability to instill public confidence in the institution? These are the questions more relevant to the long term health and sustainability of the system.

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