Strategy:
(Overweight)
Tax Amnesty Is On!
(Overweight)
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.
Best regards,
Helmy Kristanto
Director
Head of Indonesia
Research
PT. RHB Securities
Indonesia
