Bank Indonesia said it’s working to maximise the potential benefits of a planned tax amnesty that may help boost economic growth to as much as 5.4% this year.
About 560tn rupiah ($41bn) will be repatriated as a result of the amnesty, Juda Agung, executive director of monetary policy at the central bank, said in an interview late on Monday. That will result in additional tax revenue of 53.4tn rupiah that can be used to add an estimated 0.3 percentage point to the gross domestic product growth rate, he said.
“Inflows must be managed, so they won’t give shocks to the markets,” Agung said. The incoming funds should boost 2016 growth to the upper end of Bank Indonesia’s 5% to 5.4% target range, he said.
With economic expansion at the slowest pace last year since 2009 and a lack of progress in boosting tax collection, the government of President Joko Widodo has been forced to get more creative in raising the revenue it needs to fund an ambitious infrastructure programme.
Lawmakers are currently debating the tax amnesty bill and Soepriyatno, the deputy chairman of parliament’s financial commission, told the Detik website last week that it’s likely to be implemented in July. The amnesty will be valid for six months.
Indonesia’s sovereign bonds have surged this year, rallying 10% in the best performance in Asia, according to Bloomberg indexes. The rupiah has strengthened 1% against the dollar and the Jakarta Composite Index of shares is up 4.4%.
The inflows from the tax amnesty may not be immediately converted into rupiah and could be temporarily held by Bank Indonesia, Agung said. The monetary authority may consider placing the funds in new market instruments, such as infrastructure bonds, he said.
“It will be more secure for the funds’ owners to repatriate their money in dollars because of the volatility of the rupiah” said Josua Pardede, a Jakarta-based economist at PT Bank Permata. “Bank Indonesia and the government should consider a variation of dollars or non-tradable instruments for the repatriated funds.”
The government will pick five banks to manage repatriated funds placed in investment instruments such as mutual funds, stocks with lock-in periods, real estate investment trusts and bonds issued by state-owned companies, Finance Minister Bambang Brodjonegoro said last week.