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Indonesia to cut spending after parliament delays tax amnesty debate

Friday, February 26, 2016 - 13:24

[JAKARTA] Indonesia's government will have to cut some of its spending because parliament delayed debate of a tax amnesty bill expected to bring in extra revenue, the chief economy minister said on Friday.

Parliament decided on Thursday to delay discussion of the tax amnesty bill - which President Joko Widodo's government is counting on to boost revenue by some 60 trillion rupiah (S$6.27 billion) this year - until after it returns in early April from recess, local media reported.

"We have to make the state budget more efficient, especially spending on goods," Darmin Nasution, coordinating minister for the economy, told Reuters when asked how the government would respond to the delay.

Indonesia's budget deficit widened in 2015 to 2.53 per cent of gross domestic product, from the initial plan of 1.9 per cent, because of a large revenue shortfall.

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Government officials have said previously they would revise down this year's revenue target, but are waiting for the approval of tax amnesty, which offers a low tax rate to individuals who declare untaxed wealth.

The government had wanted to launch the amnesty in the first quarter of this year. The amnesty bill contained a clause allocating the biggest tax discounts to those who came forward before March.

Slow government spending was a primary reason the economy slowed sharply in early 2015, while a resumption in spending helped accelerate growth towards the end of last year to above expectations.

Bahana Securities, a local brokerage, wrote in a note to clients that the amnesty is likely to be implemented at the end of 2016, and that this delay "would apply pressure on the government's revenue" and economic growth.

Earlier this month Finance Minister Bambang Brodjonegoro told a parliamentary committee that draft revisions to the budget would be submitted one or two months after the start of the amnesty programme.

Mr Brodjonegoro estimated that government revenue would need to be revised down by at least 90 trillion rupiah from the original target just to take account of still-weak global commodity prices. That estimate took no account of any delays to the amnesty.

REUTERS

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