Making Sense Of The Indonesian Tax Amnesty

Opportunities in Asia

Making Sense Of The Indonesian Tax Amnesty

Wealthy Indonesians holding investments overseas are going to be affected by the Government's Tax Amnesty. Tax experts Rawlinson and Hunter give us the latest update.

Published on 27 June 2016

If you are a wealthy Indonesian there is a high chance that for many years you have held your assets offshore. Driven primarily for reasons of asset protection, it has been the default path of the rich to park funds and invest in assets outside of their home country, with Singapore being a primary beneficiary over the last 10 years in particular.

The Indonesian government has long mooted that they will clamp down on undeclared and ‘tax evading’ overseas funds.  In their estimates, as much as Rp 4 quadrillion of undeclared Indonesian assets could be residing overseas and that of course means the potential of much needed tax receipts at a time of a slowing economy.

It now seems inevitable that the government will bring their tax amnesty plans in to fruition and potentially very soon.  We spoke with Rawlinson and Hunter, the global accounting and tax specialists, who gave our wealthy Indonesian readers this summary of the current situation.

Timing of the Amnesty

The Draft Tax Amnesty Bill (‘the Bill’) now seems to have received support from the Indonesian Parliament, as it is believed that the Bill can provide a significant contribution to the Indonesian economy.   This is in stark contrast to the sentiment expressed at the end of 2015.

The Minister of Finance for Indonesia claims he is confident that the discussion on the Bill with the House of Representatives will be completed no later than mid-June 2016. If this holds true, it is expected that the enactment and implementation of the Tax Amnesty will commence in early July 2016.

Holding period

The Director General of Taxes for Indonesia has stated that, as per the draft Bill, the Tax Amnesty holding period will be valid for one year and split into three periods from its commencement:

  • The first three months – July to September 2016;
  • The second three months – October -December 2016; and
  • The final six month period – from January to June 2017.

Each period has proposed redemption tariffs i.e. 2%, 4% and 6% respectively without asset repatriation to Indonesia.

With asset repatriation, the redemption tariffs are proposed to be 1%, 2% and 3% respectively.

“IN government estimates RP4 Quadrillion of
undeclared Indonesian Assets could be residing overseas”

Rather confusingly however, The Minister of Finance for Indonesia has stated that the Tax Amnesty is only going to be in force until the end of this year – meaning from July to December 2016. As such, the holding period of the Tax Amnesty, and its tax redemption tariffs, have become unclear!

Outstanding issues

The Parliament Working Committee reviewing the Tax Amnesty is of the opinion that there are at least three crucial issues unresolved in the draft Bill and they are as follows:

  1. Tax reform should be carried out simultaneously with the Tax Amnesty. When looking at experiences of other countries, tax amnesties have tended to fail in the absence of relevant tax reform.
  2. Redemption tariffs in the amnesty appear too low. The concern is that such tariffs will create a sense of injustice, and more importantly the government will miss out on significant revenue. Instead of 1% to 6% tariffs on the net value of asset, higher tariffs of 5% to15% have been proposed.  Other factions propose a 48% penalty and criminal sanctions to be waived but tariffs should remain about 25% to 30% in line with the prevailing income tax rates.
  3. Regarding the non-use of data and information contained in the Tax Amnesty for criminal investigation and / or prosecution of taxpayers, it is still unclear whether data and information from the Tax Amnesty could still be used to assist other criminal investigations or enquiries relating to matters such as corruption, drugs, terrorism, and human trafficking.

Conclusion

Rawlinson & Hunter say it is optimistic to believe that the Tax Amnesty will be in place by July 2016. They do however suggest that taxpayers who may be impacted start identifying all of their assets and consider the advantages and disadvantages for repatriation or non-repatriation schemes.

One thing is for sure and that this bill coming in to force is no longer a question of ‘if’ but ‘when’.

Once the Bill is enacted, Rawlinson & Hunter Singapore will be ready to assist clients with preparing and filing the Tax Amnesty application to the Indonesian Tax Authority.

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