By Hidayat Setiaji and Gayatri Suroyo

JAKARTA (Reuters) - Indonesia's tax amnesty is collecting funds to help grow the economy and does not pardon tax evaders, its finance minister on Tuesday told a court assessing whether the pivotal government program is constitutional.

The amnesty, launched in July, is a top priority for President Joko Widodo, who wants the repatriated funds to help cover for Indonesia's large budget deficit and broaden the tax base.

Should the court strike down a law backing the program that lasts until March 2017, it would be a serious setback for Widodo.

At a minimum, it will be weeks before the court makes a ruling. The next hearing is next week.

The amnesty lets taxpayers disclose previously untaxed wealth and have their tax crime wiped clean in return for paying some penalties.

Four groups, including one Indonesian trade union, filed judicial reviews asking the Constitutional Court to declare the law creating the amnesty null.

Finance Minister Sri Mulyani Indrawati, a widely-respected technocrat who returned to Indonesia in July after six years as World Bank managing director, vigorously defended the amnesty at a hearing

"The tax amnesty policy was not proposed to pardon tax evaders at all," she said. "Rather it is a way for taxpayers to withdraw funds or assets that have been kept abroad all this time and move them back home to grow the national economy and for taxpayers to be honest with their wealth and income."


Indrawati said the amnesty can improve the tax office's database of taxpayers, especially the wealthy, which would aid future tax collection.

Only 27.6 million Indonesians are registered taxpayers out of around 115 million citizens working in the country, she said.

Said Iqbal, the president of the Confederation of Indonesian Workers Union that is part of one group of plaintiffs, told reporters outside court that he rejected Indrawati's arguments.

"We workers are compliant taxpayers, while those who've done corruption, trafficking, drug trading can be pardoned under the tax amnesty law," he said.

The amnesty has taken off after a slow start. More than 1,000 trillion rupiah ($76.05 billion) worth of assets have been declared under the amnesty so far.

The penalty fee collected has amounted to more than 30 trillion rupiah ($2.28 billion), better than the central bank's projection for revenue for the whole amnesty period.

(Additional reporting by Cindy Silviana; Editing by Richard Borsuk)