Indonesian stocks and country-specific exchange traded funds rebounded along with global markets off the Brexit selling, and the emerging market found further support after Indonesia’s parliament approved a tax amnesty bill.
On Tuesday, the iShares MSCI Indonesia ETF (NYSEArca: EIDO) increased 4.0% and Market Vectors Indonesia Index ETF (NYSEArca: IDX) gained 4.1%.
Indonesian markets bounced after parliament approved a tax amnesty that the government believes would draw in billions of dollars to finance a budget gap as the country invests to expand its infrastructure in a bid to stimulate economic growth, Bloomberg reports.
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“It (tax amnesty) is directly positive for construction and indirectly positive for property, banks, along with the domestic economy,” according to Trimegah Securities, Reuters reported.
[related_stories]Individuals who repatriate undeclared assets held abroad would only face a 2% to 5% penalty, according to the bill. Those who decline to repatriate the funds could face a 4% to 10% penalty. The tax amnesty rates are well below tariffs for income tax, which currently sit at 5% to 30% for individuals and 20% to 25% for companies, Reuters reported.
The central bank calculated that the tax program could draw 560 trillion rupiah, or $42.5 billion, back into the country, with almost 30% or 165 trillion rupiah, going to the government.
President Joko Widodo’s government is facing a widening budget deficit and is anticipating the tax amnesty to help bring finances back in to balance.
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“The first benefit from the tax amnesty would be the potential for capital inflows, which will really help the economy that’s currently seeking new sources of growth after a period of low commodity prices,” Finance Minister Bambang Brodjonegoro told reporters. “We hope this will boost growth.”
For more information on the Indonesian market, visit our Indonesia category.
iShares MSCI Indonesia ETF