Indonesia's Financial Service Authority noted foreign capital out from the country reached US$953.47 million since the beginning of 2019 until May 17, 2019 - Photo: Pixabay.

JAKARTA (TheInsiderStories)Indonesian government will evaluate income tax for export proceeds as an attempt to stabilize rupiah exchange rate against US dollar, said Minister of Finance Sri Mulyani on Tuesday (14/8).

Mulyani instructed Director General of Taxation and Fiscal Policy Office to evaluate tax reduction policy on export proceeds. “I have asked them to evaluate export proceeds tax policy, why is it less effective and less understood [by exporters],” she said, as quoted by CNBC Indonesia.

Meanwhile, Ministry of Finance’s Director General of Taxation Robert Pakpahan said the current tax rate for export proceeds is attractive but not many investors used this incentive. Therefore, he added, the Ministry of Finance will evaluate this in order to encourage exporters to repatriate its export proceeds to domestic banks and convert it into rupiah.

The current income tax for export proceeds regulated in Minister of Finance Regulation 26/PMK.010/2016. This incentive is a part of the policy in the second economic package launched in 2015.

According to the regulation, the income tax on the interest is 10 percent from initially 20 percent if the export proceeds deposit in US dollar in domestic banks for a month.

It decreases to 7.5 percent and 2.5 percent if deposited to domestic banks for 3 months and 6 months, respectively. If the proceeds are deposited in domestic banks for more than 6 months, then no income tax.

If the exporters convert its export proceeds to rupiah, the income tax will be reduced to 7.5 percent if deposits in domestic banks for a month, decreased to 5 percent if deposits for 3 months. Export proceeds that deposits for 6 months will not be subjected to interest income tax.

Vice President Jusuf Kalla earlier said that Indonesia needs strict regulation on export proceeds in order to generate more foreign reserve exchange thus stabilize rupiah. He added only around 80 percent of export proceeds stay in the domestic economy due to a free foreign exchange regime policy implemented since the 1980s, and loosen in 1998 when the financial crisis hit.

Indonesian government needs to keep export proceeds stay in the domestic financial market in order to maintain a current account deficit that has an impact in stabilizing rupiah against US dollar.

The country’s CAD widened to 3 percent of GDP or US$88 billion in the second quarter of this year, the highest since 2014, according to Bank Indonesia data. It higher than CAD in the first quarter of this year at 2.2 percent of GDP or US$5.7 billion and 1.9 percent of GDP or US$5 billion in the second quarter of 2017. The country booked a CAD of 2.6 percent of GDP accumulatively in the first half of this year.

The worsening CAD in addition to the external factors, especially Turkish crisis sentiment sent rupiah lower. Rupiah depreciation since the beginning of the year recorded at 7.89 percent. However, Rupiah closed up 0.16 percent or 24 points at Rp14.584 per US$1 in today’s trading.