SINGAPORE (Sept 19): Nomura is maintaining its 2016 fiscal deficit forecast for Indonesia at 2.9% of GDP despite noting “good progress” of the nation’s recent tax amnesty deal.

In a Friday report, research analysts Euben Paracuelles and Lavanya Venkateswaran highlight that although no revenue assumptions from the amnesty were factored in for Nomura’s previous fiscal deficit forecast of 2.9% of GDP, the estimate has remained unchanged to imply its assumptions on the expenditure side will be “relatively unaffected”.

In their estimates, they have also taken into consideration “significant shortfalls in tax revenue collections relative to the budget” – as actual year-to-date collections are down 2.2% y-o-y in the seven months to July, which suggest the full-year turn-out could be tracking even lower.

There may also be some further cushioning from non-tax revenues given oil prices are averaging above Nomura’s US$30-35/bbl assumption, they add.  

According to an online report from Indonesia’s ministry of finance (MOF), the deal has raised a cumulative IDR22.7 trillion ($2.35 billion) of extra revenue as of Sept 15 ever since the amnesty took effect starting with a 4% tax rate, which Indonesians may volunteer to pay for declared assets left overseas.

(See also: Indonesians declare $12.2 bil of Singapore assets for tax)

(See also: Singapore banks report Indonesians embracing tax amnesty to police)

“This is good progress… and clearly shows some build-up in momentum after a slow start with revenues in the first two weeks of September more than doubling to IDR15.6 trillion from all of August,” the analysts observe.  

Paracuelles and Venkateswaran also reckon that a growth in the number of participants of the programme – including well-known personalities such as former President Suharto’s son Tommy Suharto – is likely to encourage even more participation among Indonesians in time to come.

“We would expect to see a further acceleration of revenue proceeds at least in the near term, with more taxpayers likely to declare assets as we approach the end of the first phase of the amnesty, in which the penalty rate increases from 4% to 6% after September.”

Yet, according to Paracuelles and Venkateswaran, their unchanged deficit forecast estimation underscores Nomura’s view that fiscal policy will remain supportive of Indonesia’s economic growth – and that weaker-than-budgeted tax collections are unlikely to result in sharp declines in infrastructure spending for the government to meet the fiscal deficit limit of 3% of GDP this year.

“Along with monetary policy easing and continued economic reforms, we believe this (fiscal policy) should sustain the domestic demand-led recovery,” say the analysts.