Tuesday, 15 October 2019 | 07:02 WIB

Infrastructure Bond Interest Rate Drop May Cause Bank Interest Rates to Rise

Infrastructure Bond Interest Rate Drop May Cause Bank Interest Rates to Rise (economictimes)

JAKARTA, NETRALNEWS.COM - The decreasing of interests on infrastructure bonds is considered effective in raising funding, but on the other hand it is feared to add pressure on banking liquidity. In the end, banks have the potential to raise deposit rates and credit.

"There is a pretty basic difference because if the tax on bank deposit interest, for example deposits, is 20%, the bonds will fall to five percent from 15 percent. There will be pressure on banks to collect deposits (Third Party Funds)," said Executive Director of the Institute for Development of Economics and Finance (INDEF) Tauhid Ahmad, in Jakarta, Monday (6/24/2019).

The INDEF statement responded to the discourse of Indonesa Finance Minister Sri Mulyani Indrawati to cut the bond interest income tax (PPh) to 5% from the previous 15 percent.

According to Tauhid, before the bond interest tax is cut, the attractiveness of banking deposit instruments is not competitive compared to the range of yields of various types of bonds.

For example, said Tauhid, interest or yields on corporate bonds currently vary in the range of eight percent to 9.25%. Meanwhile, deposit interest offered by banks and guaranteed by the Indonesia Deposit Insurance Corporation (LPS) is a maximum of 7%.

"Take with a short-term scenario with an interest bond of eight percent so that if the investor invests IDR 100 million, the yield obtained after the interest on the bond is reduced from 15% to 5%, to IDR 7.6 million. the highest at the moment is only 7%. After that, the yield will be reduced by up to 20%, "he said.

Therefore, Tauhid concluded that there was potential pressure on banking liquidity with plans to reduce bond interest taxes. According to data presented by Tawhid, as of April 2019, of the total bank funding, 84% came from third party funds.

Meanwhile, Minister of Finance Sri Mulyani has not explained in more detail regarding the plan to cut the interest on the bonds.
The plan to reduce the tax rate or the final PPh of the bond interest is planned to be one of the fiscal incentives that will be issued by the government to encourage investment. In addition to these incentives, the government will also cut corporate income tax rates.

The government's plan to reduce interest on bonds has actually been studied for a long time. The interest rate reduction is expected to be able to attract investors to own the investment instruments. The reduction in bond rates is also expected to increase financial market deepening.

At present, bond interest tax is pegged at 15% for domestic taxpayers and 20% for foreign taxpayers according to Government Regulation No. 100 of 2013 concerning Income Tax in the Form of Bond Interest.