The proposed tax amnesty would allow people to declare previously unreported assets and benefit from tax rates as low as 2 percent. That compares with the corporate tax rate of 25 percent and the top rate of 30 percent for personal income.
The move is aimed at enticing well-heeled Indonesians into repatriating their assets back home. It is expected to net an extra USD4.4bn of revenue for the government this year which will go a long way to supporting the government’s fiscal spending. According to Bloomberg, the windfall is equivalent to about a fifth of Jokowi’s infrastructure budget for 2016.
Impact #1: Enhanced Indonesian Macro
The first order impact from this would be of course higher fiscal spending and increased liquidity in the Indonesian economy as Indonesians are allowed to buy government bonds, properties or deposit their repatriated cash into fixed deposits. There might be some upwards pressure on inflation with all that cash sloshing about, but I would say overall there should be a net benefit to the economy.
Currently, Indonesia has one of the poorest rankings in terms of ease of paying taxes among South-east Asian nations.
Based on what we have discussed, it would seem that banks and property developers are the main beneficiaries of the tax amnesty. Banks will have more deposits and hence capital while developers might see increased sale, particularly in the luxury segment. Just think of what the commodity-boom did to luxury properties in Singapore in the late 1990s – some of that money may be going back and it seems only likely that there will be a similar, albeit smaller, effect. That also brings me to my final point…
Impact #3: Singapore Banks and Yield Stocks May See Negative Impact
Capital flows tend to be a zero sum game. Having been a beneficiary of commodity-fueled capital, Singapore will probably see increased outflows as the tax amnesty increases in popularity. Asset management firms and banks will be the main losers. Yield stocks such as telcos and REITs may experience some degree of selling down too. Lastly, luxury properties should also see reduced demand going forward.