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Indonesia Mulls Tax On Hot Money Inflows

by Mary Swire, Tax-News.com, Hong Kong

17 November 2010


Agus Suprijanto, acting head of the fiscal policy unit at Indonesia’s Finance Ministry has disclosed that the government is looking at all of its options to control inflows of short-term foreign capital, including their taxation.

While it is expected that explicit capital controls are unlikely to be imposed in order to manage the inflows of hot money into the country’s debt and equity markets, and their effect on the Indonesian rupiah, Agus said that a form of taxation on those inflows was still an option within the government’s armoury.

He pointed to the 15% withholding tax on interest and capital gains payable to foreign investors on bonds in Thailand, and the transaction tax imposed by the Brazilian government on foreign bond investments, but added that the Indonesian government is, as yet, undecided, if it was to impose a tax on hot money, whether the tax should impact when the capital enters the country, or after it has already arrived.

In addition, he said that, most importantly, in order to manage the volatility of speculative foreign capital, the government is also allocating funds to re-purchase government bonds if it should be necessary to manage or try and avoid sudden outflows of capital.

TAGS: tax | economics | banking | capital markets | withholding tax | Indonesia | currency

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