Indonesia’s Tax Amnesty Spurs CIMB Niaga Structured Note Sales

(Bloomberg) -- Sales of structured notes by Indonesia’s biggest issuer are rising, as a government program to encourage wealthy citizens to send offshore funds back home frees up money for the high-yielding investments.

PT Bank CIMB Niaga has seen its issuance in the Southeast Asian nation jump 15 percent since June, according to bank figures. That’s when the country launched the amnesty offering Indonesians who agree to repatriate their assets over a period of at least three years a tax rate of only 2 percent. Structured investments which pay returns as high as 9 percent are one enticement to send money home for wealthy Indonesians who parked assets in private banking hubs such as Singapore.

“We have seen increased demand for structured products since the tax amnesty was announced,” said Ferdinand Renaldi Wawolumaya, head of trading and structuring for treasury and capital markets at CIMB Niaga. “Investors can choose to keep their money offshore but there are many products that offer high returns in Indonesia.”

President Joko Widodo is seeking to inject more cash into the economy to build railways, roads and ports after vowing to boost growth to 7 percent during his term from 4.8 percent last year. The rupiah has jumped 5.3 percent against the dollar this year, making it the best performing currency in Southeast Asia.

The amnesty brings relief from normal income tax rates that go as high as 25 percent.

Investment Options

To be sure, repatriated funds are still relatively small and investment channels remain limited. Indonesia’s financial regulator doesn’t allow banks to issue structured products tied to equities, which are the most popular product in Asia.

“The reason why repatriated funds are low is because there aren’t enough investment options for tax payers,” said Moekti P. Soejachmoen, head of Mandiri Institute, the research arm of Bank Mandiri. “Current products are not as attractive as those abroad.”

CIMB Niaga has attracted some repatriated funds by offering rupiah-denominated three-year deposits that have a guaranteed 8 percent per year return, so long as the bank doesn’t use an option to redeem them after six months, according to Wawolumaya.

To contact the reporter on this story: Viren Vaghela in Hong Kong at vvaghela1@bloomberg.net. To contact the editors responsible for this story: Andrew Monahan at amonahan@bloomberg.net, Yakob Peterseil at ypeterseil@bloomberg.net, Sandy Hendry