Jakarta. The recently launched tax amnesty program will give the government a wider fiscal space for spending in infrastructures and boosting growth, laying a stronger foundation for further rallies in the country’s bond and stock markets, Manulife Aset Manajemen Indonesia (MAMI) — one of the country’s largest asset managers — said in a report on Thursday (14/07).
“The approval of the long-awaited tax amnesty scheme has become a positive catalyst for the markets,” MAMI business development director Putut Andanawarih said in the report.
Under the tax amnesty law passed last month, tax dodgers can declare or repatriate their hidden assets and pay a small fee in exchange for government pardon for back taxes fines and tax crime charges.
The government expects more than Rp 1,000 trillion ($77 billion) will be repatriated during the nine-month tax amnesty program. It also expects Rp 165 trillion in additional tax revenue, which would allow the government to increase infrastructure spending threefold from 2015 level.
Well-on-track infrastructure projects, stable household consumption and well-guarded inflation will allow Bank Indonesia, the country’s central bank, to loosen its monetary policy, Putut said.
“We are still optimistic about Indonesia’s economy in the second half of 2016,” Putut said in the report. “These catalysts will boost both the stock and bond markets in Indonesia,” he said.
The Jakarta Composite Index, or JCI, has shot up 4.1 percent since the launch of the tax amnesty program on June 28.
The rupiah has also strengthened 0.9 percent to trade now Rp 13,073 against the US dollar in line with the influx of foreign money, according to the Business Spot Exchange Rate.
Foreign holding in government bonds rose by more than Rp 9 trillion between June 28 to July 13 to Rp 651 trillion, or 40 percent of the total tradeable bonds, according to the latest available data from the Finance Ministry.
Indonesia’s GDP expanded 4.92 percent in January to March compared to the same period last year, but lower than the 5.04 percent pace in the fourth quarter.
June’s inflation rate picked up modestly to 3.45 percent from May’s 3.33 percent.
MAMI, a local asset management arm of Manulife Financial, a Canadian insurance company and financial services provider, estimates inflation will be “under control” until the end of 2016. The central bank expects inflation to be between three percent and five percent this year.
The Brexit — the UK’s shock decision to leave the European Union — has created waves of uncertainty in major markets around the world, but Putut thinks it is unlikely to pose a major impact on the Indonesian economy.
Putut said in the report that Indonesia’s trade with the European Union makes up only three percent of its gross domestic product (GDP) or only one-tenth of its total export.
Source: Jakarta Globe Beritasatu.com
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