The first period of Indonesia’s tax amnesty program is almost completed. This first period, which runs from July to 31 September 2016, offers the most attractive tax rates to those taxpayers who have not fulfilled their tax obligations in recent years. Through the government’s tax amnesty program they can declare previously undeclared assets and – if they have assets abroad (for example in the so-called tax havens) – they are encouraged to repatriate these funds into Indonesia through attractive tax incentives and immunity from prosecution, a move that met resistance in Singapore.
In recent weeks there emerged some momentum for the tax amnesty program as several big Indonesian businessmen publicly announced to support the program and repatriate offshore funds into Southeast Asia’s largest economy. The government and the nation’s financial authorities have prepared several investment instruments for these funds (allowing to absorb excessive liquidity in case the program is a huge success). Big names that joined the program are James Riady (Lippo Group), Tommy Suharto (son of former president Suharto), and the Thohir brothers (who own huge stakes in coal mining and the media).
According to the latest data from Indonesia’s Tax Office (Thursday 15 September 2016), additional state revenue (from taxation) that is earned through the tax amnesty program now stands at IDR 22.7 trillion (approx. USD $1.7 billion), or 13.8 percent of the government’s target (IDR 165 trillion). Ken Dwijugiasteadi, Director General of Indonesia’s Tax Office, informed that since the start of September 2016 additional government tax revenue (collected through the amnesty program) averages between IDR 1.5 – 2 trillion per day, a very strong performance.
He added that a successful amnesty program is important. Up to 13 September 2016 the Indonesian government only managed to collect IDR 634.6 trillion in total revenue so far this year (excluding the oil and gas sector). This figure is only 48.1 percent of the full-year tax revenue target (set at IDR 1,318.9 trillion in the revised 2016 State Budget). Earlier the Indonesian government announced to slash government spending by IDR 137 trillion in the remainder of 2016 due to weaker-than-estimated government revenue (primarily due to weak tax revenue). This will prevent the budget deficit from widening further. However, it will also prevent Indonesia’s economic growth from growing at a higher pace. This year Indonesia’s GDP is expected to expand by 5.1 percent (y/y), slightly below the government’s (revised) target of 5.2 percent (y/y).
Recently, there also emerged speculation that Indonesia may want to extend the tax amnesty program beyond its current deadline set at 31 March 2017. However, Indonesia’s Tax Office said there are no plans to extend the program. Therefore, taxpayers need to settle cases of undeclared assets before 31 March 2017 in order to avoid big penalties. According to Law No. 11/2016 on Tax Amnesty, a taxpayer can use the facility up to three times. However, the earlier he/she declares previously undeclared assets, the more attractive the tax rates are.
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
Singapore’s Private Banks Go to the Police
Meanwhile, private banks in Singapore have to report their Indonesian clients – those who decide to join the tax amnesty program – to the police, a move that can undermine the success of Indonesia's tax program. This is actually not a new matter. Last year Singapore's Commercial Affairs Department (CAD) already instructed the banking sector of Singapore to report every individual that joins a tax amnesty program (in whatever country). This requirement was implemented to avoid or combat any behavior that is related to tax fraud.
When a client of a Singaporean bank informs that he's participating in a tax amnesty program there is a big possibility that the assets stored at Singaporean banks are not compliant, and therefore banks need to report these cases to the local authorities. It is estimated that Indonesians account for a total of USD $200 billion of private banking assets managed by Singaporean banks, or roughly 40 percent of total assets.
Poll Indonesia Investments:
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