Bank Indonesia to maximize advantage from tax amnesty

[JAKARTA] Inflows from Indonesia's planned tax amnesty will help boost economic growth to as much as 5.4 per cent this year and the central bank is working to maximize the potential benefits.

Around US$41 billion will be repatriated as a result of the amnesty, Juda Agung, executive director of monetary policy at Bank Indonesia, said in an interview late on Monday. That will add 0.3 percentage point to gross domestic product, he said.

"Inflows must be managed, so they won't give shocks to the markets," Mr Agung said. The incoming funds should boost 2016 growth to the upper end of Bank Indonesia's 5 per cent to 5.4 per cent target range, he said.

Economic expansion that slowed to the least since 2009 last year and a lack of progress in boosting tax collection has forced the government to get more creative in raising the revenue it needs to progress an ambitious infrastructure program. Lawmakers are currently deliberating 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 per cent in the best performance in Asia, according to Bloomberg indexes. The rupiah has strengthened 1.2 per cent against the dollar and the Jakarta Composite Index of shares is up 4.9 per cent.

The incoming funds may not be immediately converted into rupiah and could be temporarily held by Bank Indonesia, Mr Agung said. The monetary authority is also suggesting placing the funds in new market instruments such as infrastructure bonds so the money can benefit the wider economy, he said.

BLOOMBERG