Sample Accounting Paper on Tax Amnesty in Indonesia


The Indonesian government developed and implemented a tax amnesty program effective from July, 2016. The program aims at improving tax compliance of the Indonesian citizens, increasing government revenue and possible diversion of funds of Indonesians held in foreign countries. When the Indonesian government noticed the large amount of revenue wasted through foreign reserves and tax evasion, policymakers sought to implement measures to rectify the tax system. The policy seeks to encourage the Indonesian citizens, who invested their money in countries with cheaper tax rates, to store the money in Indonesian financial systems (Arnold, 5).  However, the system received a lot of criticism regarding the effectiveness of the program, and the fact that the system deems unjust for the regular taxpayer. Therefore, the controversies call for the determination of the extent to which the tax amnesty results in a good taxation system in Indonesia and lead to an improved justice system in the future.


The Tax Amnesty Program

A tax amnesty program means a one-time offer program given to tax evaders to encourage them to pay an outstanding debt for an amount lower than what they owe. Tax refers to the amount of money paid by citizens of a country to the government for the purpose of the government harnessing development projects. Tax Amnesty, therefore, pardons tax evaders and allows them to invest in their country. Therefore, tax amnesty at allows those who do not pay their dues to meet their obligations without incurring penalties and fees and thus (Mikesell, John and Justin, 12). Furthermore, the program enhances the declaration of unreported wealth from abroad. Tax amnesty provides the Indonesian people with an opportunity to bring back home the assets they hoarded abroad, thereby contributing to economic growth. The program promotes investment of offshore assets within the Indonesian Territory through government bonds, enterprise bonds and financial investment (Atwood, 4).

The Indonesia Case

The approval of the tax amnesty bill strengthened the Rupiah and led to a one percent increase in the Jakarta Composite shares. The bill made over 1580 taxpayers to declare 10.9 trillion Rupiah. The amount collected represents a mere 0.1% of the targeted165 trillion rupiahs, the same figure announced in the first three weeks of the program’s implementation (Arnold, 8). The figures indicate that controversial or not, the amnesty bore fruit. People have different thoughts about tax amnesty, they are not sure if this is something that they should be happy about or not. Having earned $10,000, imagine that you pay 30% tax of that $10,000 to the government. Now, your colleague, having earned the same amount of money you earned, spent $2,000 of his salary and paid no taxes. Two weeks later, he participates in a tax amnesty program in which he only pays 2% tax of that $8,000 he left. Compared to you, who pays more tax?

Indonesia’s currency deficit stands at around 2.5% of the GDP, and, therefore, the reprieve needs implementation to boost the state budget (Arnold, 3). With the decreasing coal and gold prices, the Indonesian government needs more revenue to finance rural development, education, and health care. The primary source of revenue for running government affairs, such as funding education and building infrastructure, include customs and duty. In the current financial budget, Indonesia plans to derive more that 85% of its state budget from taxes.

Indonesia implemented two tax amnesty programs in the last eight years. The first policy in 2008 allowed taxpayers to rebase their returns without a penalty. The same system was implemented in 2015, but in the second case, the government allowed citizens to conduct a self assessment then pay the unpaid balance without penalties (Arnold, 9). Therefore, Indonesians got two opportunities to revise their returns without any sanctions. However, the current amnesty program improves on previous ones and adds waiving penalties, interests, and reduces amounts levied (Atwood, 6). When considering the effectiveness of the tax amnesty program, equality plays a significant role.


Tax Amnesty and Justice System

Achieving equity means that the tax system provides all participants an equal opportunity. Tax amnesty overlooks differences between the regular taxpayers and defaulters, therefore becoming an unfair system. Equity advocates for the provision of same options and consequences to taxpayers. Therefore, the law represents every participant equally, but amnesty differentiates them on the basis of level of income earned. Amnesty provides different rates depending on an individual or corporation’s property. That means wealthy people and defaulters pay at a higher tax rate as compared to low-income earners. Therefore, the government benefits from increased investments in its economy (Damayasa, 14). With such measures, the low income earners may not feel treated unfairly; defaulters get punished for their crime and the government benefits from more investment and revenue. Therefore, for the newly introduced amnesty program in Indonesia to achieve an improved justice system in future, the policy must provide for different options of investments and different rates of tax.

The regular taxpayers prefer justice to prevail in the implementation of the tax system. The policymakers need to consider their honesty and commitments in paying taxes. The governments cuts funding on public utilities, and as a result impose higher taxes on ordinary citizens. Such a measure comes as a result of corporations and wealthy individuals fail to meet their tax obligations (Luitel, 18). The government needs to consider the issue of equity to illustrate to the common citizen the necessity of the program. Some unreported assets determine the net exercise fees paid by an individual. The people and organizations that argue for fairness in payment of income tax end up paying income with few deductions.  Therefore, high wage earners end up paying negligible taxes (Ross, 7). Such a tax system proves unjust for the low-income earners. Therefore, estimation methods may be adopted to achieve justice.

To achieve equality in taxation, the authorities need to improvise a method of calculating income that reflects the total amount of a person’s actual property. The revenue authorities use unreported assets to estimate taxes on property. The figure of total, if well adjusted, accurately predicts a person’s revenue. Ordinarily, people acquire property after satisfying their needs and wants, meaning that by estimating the value of the assets, the authorities arrive at a better prediction of the actual income. The method may fail to apply but proves as the best way to close the inequality gap between honest taxpayers and the evaders.

Tax Amnesty as a Good Taxation System

A good taxation system achieves efficiency and sustainability in the long term. Efficiency entails the correct declaration of wealth, accurate calculation of the amount to be paid and provision of possible investment opportunities and options. The greater the amount of wealth declared, the higher the efficiency of the taxation system. On the other hand, the different tax rates may maximize on the same amounts of wealth declared. For the investment options, a good taxation system provides options that benefit the government and at the same protect the investors’ property (Luitel, 10). Therefore, for the Indonesian Tax Amnesty program to create a good taxation system, it should ensure equity in the declaration, collection and investment of wealth. The other aspect of a good taxation system entails sustainability.

Sustainability, on the other hand, refers to creating a long-term impact. To achieve a sustainable taxation system, the tax amnesty should provide for structural changes. Such changes include lowering the tax rates to make them compliable by taxpayers. The high tax rates make it easy for the tax evaders to go unnoticed. The high tax rates in one country also encourage the growth of foreign reserves at the expense of domestic economic development (Luitel, 7). Every economy usually focuses on creating lasting mechanisms that benefit the citizens currently and in the future. To conclude, for Indonesia to create a sustainable taxation system, the Tax Amnesty program must include lower tax rates and restructure the complexity of the current taxation system.

The tax amnesty program benefits all parties involved in paying taxes. The evaders cleared meet their obligations, and in the process, the government earns more income. Normally, a reprieve comes with merits. The system enables the government to collect unpaid dues. Secondly, tax amnesty increases future compliance by lowering costs because tax evaders no longer see the need to hide their past behavior. More so, it improves record keeping, for instance, by adding non-filers to avoid fraud in the future. Additionally, mercy given for tax evaders reduces deadweight expenses from the burden of guilt, and encourages repentance (Ross, 13). Politically, tax amnesty permits a possible transition from tougher to better economic times. Furthermore, it lowers short-term fines and authorizes the imposition of severe penalties on those who reject the offer, which improves compliance. Lastly, it lays the ground for a vigorous and productive enforcement against future evasion.

Although the program showed positive effects, tax amnesty may not reap maximum taxes from repatriation. The policy increases government revenue significantly but faces controversy. Many people consider tax amnesty suspicious and unfair for two reasons: to recover lost revenues individuals have to bear with higher taxes in the future and secondly, wealthy people end up paying less than what they should without any punishment.



Drawbacks of the Tax Amnesty Program in Indonesia

Amnesty comes along with some drawbacks. The opportunity that comes from tax amnesty may decrease, instead of raising, the efficiency and equity of the system. Furthermore, when individuals expect an amnesty in the future, they tend to report less income. Tax amnesty may also increase cheating and make the taxation system ineffective because when key players fail to punish cheaters. In other instances, the likelihood of post-amnesty compliance decreases and leads to failure to recover most of the unpaid dues. Therefore, tax amnesty may risk compliance in the long-term, and it may cause negative perceptions of the justice system from the taxpayers.

On a positive note, the actions by the authorities might encourage many evaders to declare and pay their returns. However, according to the bill, the maximum redemption rate goes at six percent, a figure lower than the current highest customs rate of thirty percent for an ordinary citizen. The amnesty participants fall in the wealthy class making the program unfair because amnesty makes high income earners pay the same or lower taxes than low-income earners (Ross, 22). For some of the high income earners, asset valuation may include old asset prices in asset valuation, resulting in the payment of duties at lower rates.

According to economists in Indonesia, even though a planned amnesty may increase tax revenues, the amnesty may strengthen the local currency therefore raising the cost of exports. However, any overvaluation of money in the economy may lead to lesser exports therefore creating a financial disaster. Consequently, to many economists, moving to offer pardons creates controversy over increasing revenues (Atwood, 17). Public policy experts threw a cautionary blanket over the issue because they believe in the complexity of estimating the cost and social benefits of an amnesty.

The fact that amnesties create an adverse impact on tax compliance is not debatable, but there are positive outcomes. The main effects associated with compliance include psychological and mental factors. People tend to develop a stronger perception about future amnesty program, which becomes a deterrent to them paying their taxes as required by law (Mikesell, John and Justin, 6). However, the adverse effects of voluntary compliance cannot be ignored because the obvious result of these regulations is that people always make a habit of expecting another amnesty program. Hence, to achieve the beneficial effects, the amnesty should be well designed so that the aforementioned negative practices are not repeated and the losses are reduced. It is also important to apply affirmative action and reward honest taxpayers by making a discount on the dues payable to foster a feeling of fairness (Atwood, 15).


Joshua Padede, an economist from one of the biggest bank in Indonesia commented,

“We understand that it is controversial, but we believe it is an opportunity to bring back the assets owned by Indonesian people abroad to contribute to economic growth.” Tax amnesty benefits Indonesia so much and raises the issues of equality and justice. The issue of inequality cannot be avoided, and the government must find ways to address the problem in the future (Luitel, 19). Apart from Indonesia, people from many developed countries put their money in countries with low taxes, referred to as tax havens. The countries include Monaco, Switzerland and Panama. One could similarly relate this to how Donald Trump never reported his tax returns. In his first debate, Clinton said,

“Or maybe he doesn’t want the American people to know that he’s paid nothing in federal taxes because the only years that anybody’s ever seen were when he had to turn them over to the state authorities as he was trying to get a casino license and they showed he didn’t pay any federal income tax.”

Trump, in turn, replied,

“That makes me smart.”

Is it right to deceive the taxation policy? How would one feel when someone who earns more and able to pay more ends up paying much less tax? How would one feel when they found out that their future president never paid taxes his whole life? The same way people feel when the tax evaders get to pay lower taxes without penalties. The new policy comes with a great opportunity but each community needs to achieve social justice too.

For the evaders to keep money in the country, the authorities need to provide a conductive investment environment (Palan, Ronen, Richard, and Christian, 3). On the completion of the program, the law needs enforcement to minimize the equity gap and improve the taxman’s ability to take action on defaulters whether within or beyond the country’s borders. If the government applies the law equally, the low-income earners get encouraged to keep paying while preventing defaulters from avoiding their obligations. At the moment, the amnesty in Indonesia seems to work according to plan. Regardless of the drawbacks, the positive outcome is encouraging, and those who have not taken advantage of the clemency should do so to avoid any future penalties.


The controversies facing the Indonesian tax amnesty program call for the determination of the extent to which the tax amnesty results in a good taxation system in Indonesia and lead to an improved justice system in the future. The tax amnesty program provides an alternative taxation system where, at a specific time, the government encourages tax evaders pay an outstanding debt for an amount lower than what they owe. The main aims of the tax amnesty program in India include encouraging wealthy people to divert investments from foreign reserves back to Indonesia, increasing government revenue and promoting tax compliance. The amnesty system in India may result in a good taxation system because ensure it ensures efficiency and sustainability through lowering taxes and accountability of the declaration of wealth, collection of income and provision of good investment options. Additionally, the tax amnesty system leads to improved justice system through efficient methods of calculating in income and imposing different tax rates.



Works Cited

Arnold, Jens. “Improving the tax system in Indonesia.” OECD Economic Department Working Papers 998 (2012): 0_1.

Atwood, T. J., et al. “Home country tax system characteristics and corporate tax avoidance: International evidence.” The Accounting Review 87.6 (2012): 1831-1860.

Darmayasa, I. Nyoman, et al. “Deconstruction of equitable tax amnesty.” International Journal of Applied Business and Economic Research (IJABER) 14.11 (2016): 8167-8179.

Luitel, Hari S. Is Tax Amnesty a Good Tax Policy?: Evidence from State Tax Amnesty Programs in the United States. Lexington Books, 2014.

Mikesell, John L., and Justin M. Ross. “Fast money? The contribution of state tax amnesties to public revenue systems.” National Tax Journal 65.3 (2012): 529.

Palan, Ronen, Richard Murphy, and Christian Chavagneux. Tax havens: How globalization really works. Cornell University Press, 2013.

Ross, Justin M. “Local government property tax amnesty programs: Structures and themes.” (2012).