The government of Indonesia finally launched its ambitious tax amnesty program on 18 July 2016. The program's main aims are to improve tax compliance in Indonesia, boost the government's tax revenue and encourage the repatriation of offshore assets (secretly kept in so-called tax havens - using shell companies - where investors can enjoy low tax rates) into Indonesia. Indonesia's tax amnesty program is designed to run for about nine months (until 31 March 2017).
Introduction: Motivation & Tax Tariffs
The Indonesian government estimates that some IDR 4,000 trillion (approx. USD $303 billion) worth of "Indonesian money" is secretly stashed abroad in tax havens such as Singapore, Panama, London, Hong Kong and the British Virgin Islands. This implies that the government misses out on much-needed tax revenue, while - if stored within Indonesia's financial system - these funds could contribute significantly to the economic development of Indonesia.
By offering tax incentives and immunity from prosecution (although a small penalty needs to be paid), the Indonesian government therefore tries to make it attractive for (former) tax evaders to declare their offshore funds to Indonesia's tax authorities and - if desired - repatriate these funds into Indonesia.
The government of Indonesia targets to see the repatriation of IDR 1,000 trillion (approx. USD $76 billion) worth of funds that are currently stashed abroad. Tax declarations of on and offshore funds should lead to IDR 165 trillion (approx. USD $12.5 billion) worth of additional state income.
The table below shows that the government makes it more attractive in case the taxpayer repatriates his/her funds into Indonesia. For example, if the taxpayer declares his/her previously undeclared assets before 31 September 2016, then a tax rate of 4 percent is applied. However, in case the taxpayer not only declares the wealth but also repatriates this wealth to Indonesia (before 31 September 2016) then a 2 percent tax rate is applied. The longer the taxpayer waits with his/her decision to join the tax amnesty program, the higher the tax rates will become. After the end of the program on 31 March 2017 there will be tough penalties for acts of tax evasion.
Tax Amnesty Program Indonesia - Tax Tariffs:
|Declaration of Funds||1 July - 31 September 2016||4%|
|1 October - 31 December 2016||6%|
|1 January - 31 March 2017||10%|
|Repatriation of Funds||1 July - 31 September 2016||2%|
|1 October - 31 December 2016||3%|
|1 January - 31 March 2017||5%|
Source: Indonesian Finance Ministry
If the Indonesian taxpayer decides to move the assets into Indonesia, then it needs to be moved to specific investment instruments that were prepared by the Indonesian government and the financial authorities (Bank Indonesia and the Financial Services Authority, or OJK). These investment instruments were prepared in an effort to absorb the potential excess liquidity that could be caused by the huge inflow of assets into Indonesia's financial system. Funds that are repatriated through the tax amnesty program are required to remain in Indonesia for at least three years. The following investment instruments are available:
- Government bonds
- State-owned enterprises' bonds
- Corporate bonds
- Time deposits and savings at designated lenders (probably the big state-controlled banks)
- Mutual funds
- Collective investment contracts
- Real estate investment trust (REIT)
- Property investment through a private equity scheme (RDPT).
The government selected 18 financial institutions, 18 investment managers and 19 stockbrokers that are allowed to handle these repatriated funds. However, only rupiah-denominated funds can be repatriated (which implies that foreign stocks, mutual funds, property etc. need to be sold first if the taxpayer wants to repatriate these assets).
Gateways for Repatriated Funds:
|Bank Mandiri||Danareksa Investment Management||Mandiri Sekuritas|
|Bank Negara Indonesia||Schroder Investment Management Indonesia||Sinarmas Sekuritas|
|Bank Rakyat Indonesia||Eastpring Investment Indonesia||Panin Sekuritas|
|Bank Central Asia||Manulife Aset Management Indonesia||CLSA Indonesia|
|Bank Danamon Indonesia||Bahana TCW Investment Management||CIMB Securities Indonesia|
|Bank Permata||Mandiri Management Investasi||Trimegah Sekuritas Indonesia|
|HSBC||BNP Paribas Investment Partners||RHB Securities Indonesia|
|Bank Syariah Mandiri||Batavia Prosperindo Aset Manajemen||Daewoo Securities Indonesia|
|Bank Bukopin||BNI Asset Management||Bahana Securities|
|Bank Mega||Panin Asset Management||Indo Premier Securities|
|Bank Tabungan Negara||Ashmore Asset Management Indonesia||UOB Kay Hian Securities|
|Bank DBS Indonesia||Sinarmas Asset Management||BNI Securities|
|Citibank||Trimegah Asset Management||Sucorinvest Central Gani|
|Bank CIMB Niaga||PNM Investment Management||Danpac Sekuritas|
|Bank UOB Indonesia||Ciptadana Asset Management||Panca Global Securities|
|Bank Pan Indonesia||Bowsprit Asset Management||MNC Securities|
|Bank Maybank Indonesia||Indosurya Asset Management||Pacific Capital|
|Bank Jawa Barat dan Banten||Syailendra Capital||Mega Capital Indonesia|
|Pratama Capital Indonesia|
Source: Finance Ministry of Indonesia
Indonesia's tax amnesty program is a controversial matter and therefore there exists plenty of criticism. The essence of this criticism is that (former) tax evaders are basically being rewarded for their (past) tax crimes. In the eyes of those (few) Indonesian tax payers that have been fulfilling their tax obligations faithfully it forms a highly unfair situation. Therefore, some argue that the tax amnesty program could in fact undermine taxpayers' confidence in (the righteousness of) the whole tax system of Indonesia, a situation that could lead to lower tax compliance (the exact opposite of the program's goal).
On the other hand, the additional state revenue and fund repatriations that are caused by the tax amnesty program can be used for Indonesia's much-needed infrastructure development and social programs and therefore should benefit society as a whole. However, it should also not be forgotten that the tax amnesty program brings along costs (for the designing, marketing and running of the program, while waived fees and penalties also form a source of missed income).
Renowned international institutions such as Moody's Investors Service and Morgan Stanley have released positive feedback concerning Indonesia's tax amnesty program. Moody's stated that the tax amnesty program is credit positive for Indonesia as the program is part of the government's reform strategies that aim at boosting tax revenue. Meanwhile, Morgan Stanley stated that asset repatriation could amount to approximately four percent of GDP, assuming an overseas asset base of USD $200 billion, assuming that 60 percent of these assets are declared, and assuming that 30 percent of the declared assets are repatriated into Indonesia.
Results So Far?
The start of the program has been slow. However, Indonesian authorities believe that the peak of tax declarations and fund repatriations will occur in September/October 2016 as the government will have further socialized the program, while a positive judicial review at Indonesia's Constitutional Court should ease tax dodgers' concerns about the legality of the program.
In July 2016 legal activists, gathered within the One Justice Foundation (in Indonesian: Yayasan Satu Keadilan) and Indonesian People's Struggle Union (in Indonesian: Serikat Perjuangan Rakyat Indonesia), filed for a judicial review at the Constitutional Court on claims that the program turns money laundering into a legal practice, protects criminals, teaches (faithful) Indonesian citizens not to pay taxes, and - more generally - represents an unfair program from a social point of view. In mid-December 2016 the Constitutional Court rejected these claims, ergo the tax amnesty program is "constitutional".
Tax Amnesty Program Indonesia - Score So Far:
(in IDR trillion)
|Per 26 Mar '17
(in IDR trillion)
|Declaration of Funds||4,000.0||4,642.0||116.1%|
|Repatriation of Funds||1,000.0||146.0||14.6%|
1st Phase: July - 30 September 2016
After a disappointing start - that could be related to the fact that the program is based on tax evaders' trust in government promises of legal certainty and immunity from prosecution, while such trust is relatively low in a country where policy flip-flops are a common phenomenon - the tax amnesty program of Indonesia was a success in the first phase (July-30 September 2016) in terms of asset declarations and additional state income. The Indonesian government collected IDR 97.2 trillion (approx. USD $7.5 billion) in additional tax revenue, or 58.9 percent of the nine-month program's full target (IDR 165 trillion), while asset declarations totaled IDR 3,603.6 trillion (approx. USD $277 billion), or 90.1 percent of the government's target (IDR 4,000 trillion), supported by a group of giant Indonesian businessmen - including Anthoni Salim (Indofood Group) and James Riady (Lippo Group) - who reported their assets and set a good example for others to follow.
Most of these asset declarations (roughly IDR 2,517.6 trillion) involve onshore assets, the remainder being offshore assets (mostly stored in the so-called tax havens).
However, the repatriation of offshore funds only reached IDR 136.5 trillion (approx. USD $10.5 billion), or 13.6 percent of the full target (IDR 1,000 trillion), at the end of the first phase. This is disappointing but makes sense considering taxpayers prefer to enjoy the more attractive tax rates overseas. Moreover, the government set the requirement that repatriated funds need to remain in Indonesia for at least three years in specific investment instruments. For many taxpayers this is an unattractive option. Another unappealing matter is that tax incentives under Indonesia's tax amnesty program only apply to historical tax liabilities. Meanwhile, new income is to be taxed at the normal rates (that are significantly higher compared to the rates in tax havens).
2nd Phase: 1 October - 31 December 2016
On Wednesday 14 December 2016 the total of declared assets surpassed the government's target of IDR 4,000 trillion, or about 3.5 months before the end of the program. But despite this success there remains reason for pessimism as nearly 75 percent of the assets that have been declared under the tax amnesty program are assets that are located domestically. Meanwhile, the amount of asset repatriations into Indonesia under the program is disappointing and remains far below the government's initial target of IDR 1,000 trillion.
Poll Indonesia Investments
A poll that we started just before the Indonesian government launched the tax amnesty program in July 2016 shows that people are generally "cautiously optimistic" about the program.
Do you think that Indonesia's tax amnesty program will be a success?
Voting possible: -
- Yes, I do (50.6%)
- No, I don't (32.8%)
- I don't know (16.6%)
Total amount of votes: 2421
Tax Amnesty-Related Information Services
The Directorate General of Taxes, a department within Indonesia's Finance Ministry, opened several information offices around the country where Indonesian taxpayers can obtain advise as well as a step-by-step guide on how to declare and repatriate funds under this program. These service centers are opened seven days a week (although opening hours are limited in the weekend).
According to information from the tax amnesty program's official website, the taxpayer needs to fill in 13 documents (available for download at the official website or at the information centers) and hand these documents over to the tax office. All assets owned by the taxpayer before the year 2015 (that were not reported in earlier tax reports) should be listed in these documents. The Directorate General of Taxes also opened a hotline: (+62) 08.1310.50.3747.
Last Update: 27 March 2017