Indonesia: Tax Amnesty Is On!
The Parliament has finally approved the
revised 2016 Government Budget and the long-awaited Tax Amnesty Bill. In our
view, the amnesty approval signifies two things:
1. Securing more funding for the continuation of
infrastructure projects whilst keeping the budget deficit in check; and,
2. A stronger government standing in Parliament.
Ultimately, this will
restore confidence in Indonesia’s financial market and currency. Property and
infrastructure plays should also get a boost from this, while the expected
stronger foreign net inflow into the equity market ought to bode well for big-cap
stocks.
♦ The
parliament approved the Tax Amnesty Bill and the passage of this law will strengthen
Indonesia's budget situation, with the Government currently under the pressure
of an increasing budget deficit. We believe this will serve as a solid catalyst
for the market in general by restoring confidence back in the Government in
terms of budget strength, which will ultimately attract foreign inflow back
into the country. As Indonesia adopts a self-assessment taxation system, the
Tax Amnesty Bill is also seen as a means of improving taxpayers’ compliance
levels going forward.
♦ The
tariff for the Tax Amnesty Bill is split into three classifications:
I. Redemption rate for assets invested
domestically for at least three years;
II. Redemption rate for offshore assets that will
not be invested domestically;
III. Redemption rate for small and medium sized
enterprises (SMEs) with up to IDR4.8bn in assets.
The lowest rate will
be given to taxpayers who repatriate their offshore assets back home after
declaring them. However, these assets will have to be kept domestically for
three years under government-appointed investment managers. The redemption rate
is within the 2-10% range, with a progressive escalation of three months. In
our view, the initial 90-day imposition period is seen as critical to gauging
the participation level, especially in view of the Government’s rather
aggressive IDR160trn revenue target from the tax amnesty bill.
♦ The
property and infrastructure/construction sectors will benefit from the bill. On the property
front, we see two key reasons:
I. Domestic property buyers, who are currently
being targeted by the tax office, have been deferring property purchases. With
the passage of the Tax Amnesty Bill, these individuals are likely to properly
report their asset values and will subsequently be free to use their
cash/deposits to purchase assets. Property is still seen as one of the key
investment instruments domestically;
II. The
Tax Amnesty Bill states that money repatriated as part of the amnesty will be
allowed for investment in properties at a later stage.
On the other hand, with additional government
revenue from the tax amnesty, infrastructure funding will be more secure, which
will bode well for the construction sector.
♦ Our Top Picks for the property
space are Bumi Serpong Damai and Ciputra Development, while we like Adhi Karya
and Waskita Karya in the infrastructure sector. We believe the potential higher
foreign inflow into the equity market will bode well for big-cap stocks with ample
liquidity. On this liquidity-play segment, our Top 5 picks are Astra
International, Bank Central Asia, Indofood Sukses Makmur, Indofood CBP and
Telkom Indonesia. (Helmy Kristanto)
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Sector Update:
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Property (Overweight) - Wait No More
We upgrade our
sector call to OVERWEIGHT (from Neutral), as we expect its outlook to improve
from:
1. Passing of the Tax
Amnesty Bill;
2. Declining benchmark
interest rate; and
3. Relaxation of the
LTV policy.
The recovery in property demand should
accelerate in 2017; as such, our FY17 presales target of IDR33.5trn (+10% YoY)
is on the conservative side. (Lydia
Suwandi)
Link to report: Wait No More
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Media Highlights:
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Economics
New Taskforce
launched to oversee stimulus policy packages
Corporates
Alfamart launched
first virtual store in Indonesia
Bank Tabungan Negara
increase third party funds target
Bakrie group revives
plan to sell 10% shares in TV station
Fairfax to buy 80%
of Asuransi Multi Artha Guna for USD165m
Indah Kiat prepares
USD120m capex
Mayora to disburse
dividend of IDR268.3bn
Pakuwon aims IDR900bn marketing sales for
FY16F
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Best regards,
Helmy Kristanto
Director
Head of Indonesia Research
PT. RHB Securities Indonesia
