President Joko “Jokowi” Widodo is pursuing a second round of tax amnesty through the newly passed Tax Harmonization Law (HPP) in an effort to boost tax revenues amid the pandemic. The public, however, have viewed the new policy negatively, believing it would only benefit the rich with the potential to undermine tax compliance.

Chapter V of the HPP Law that amended the 1983 General Taxation Law (KUP), governs the new round of tax amnesty, dubbed the Taxpayers Voluntary Disclosure Program, which entails two reporting schemes. The first scheme includes taxpayers’ assets obtained prior to the first tax amnesty, covering the period from Jan. 1, 1985, to Dec. 31, 2015. The second scheme covers reporting of assets earned after the first tax amnesty, that is, from Jan. 1, 2016, to Dec. 31, 2020. 

Effectively running for six months from Jan. 1, 2022 to June 30, 2022, the program will impose a certain tariff-like structure that treats reported assets as additional income.^1 2  The rate ranges from 6 percent to 11 percent for assets obtained from 1985 to 2015 and 12 percent to 18 percent for assets obtained from 2016 to 2020 (see table on rate structure). The rates are higher than those set in the first round of tax amnesty. 

The government is apparently trying to repeat the success of the first tax amnesty, pursued in 2016-2017, in which the government managed to get a total of Rp 4,884 trillion (around US$342 billion) in newly-declared assets – about 40 percent of the country’s gross domestic product – and collected Rp 114.5 trillion in additional revenue for the state budget.³  In the second round of tax amnesty, however, the government has not set specific targets on declared assets and additional tax revenue from the policy. 

The new tax amnesty encourages more investment in the processing industry of the primary sector and in government debt instruments, it would likely give a boost to investments in mining refinery and smelting as well as in government bonds. The tax amnesty policy, which was introduced less than 5 years after the first, could backfire in the long term as it could undermine tax compliance, especially among big businesspeople. 

The first tax amnesty, according to Finance Minister Sri Mulyani Indrawati, improved taxpayers’ compliance in their voluntary tax reporting from 61 percent before the first tax amnesty to 73 percent after.  Overall, tax reporting compliance increased from 52 percent in 2012 to 78 percent in 2020. However, according to experts, the second tax amnesty could have a different effect to the first amnesty as businesspeople may expect another round of tax amnesty in the future, therefore, having a negative effect on tax compliance. 

Sources said that the second round of tax amnesty, proposed by businesspeople through the Golkar Party, was initially rejected by the finance minister to be included in the KUP bill. After it was brought to President Jokowi by Coordinating Economic Affairs Minister Airlangga Hartarto, who is also Golkar Party chairman, Jokowi stood to support the second round of tax amnesty as it would be a legitimate source of state revenue to finance his signature projects, including building the new capital city in East Kalimantan.