Indonesia Chasing Overseas Money

Jakarta, GIVnews.com – The Indonesian government is mulling over a tax amnesty plan that is projected to add billions of dollars to the state’s tax revenue. This huge amount of money, if realized, could help boost development and government spending in a country which have recently undergone its slowest economic growth.

Under the proposed plan, Indonesians who possess assets or money overseas would have their back tax penalties waived for up to five years if they declare their possessions to the government. Although no official data exists, analysts have estimated that up to IDR 4 quadrillion of Indonesian funds are kept overseas, spread in Singapore, Hong Kong, Switzerland, Luxembourg, Macau, and the Cayman Islands among others.

The plan is aimed to help the government reach its tax-to-GDP ratio target, which is set at 16%, a big increase from last year’s 12%. In 2015, the Finance Ministry hopes to obtain IDR 1.48 quadrillion from tax, a 28.7% increase from 2014’s IDR 1.15 quadrillion. However, in reality things does not look good. Until the end of April, only 23.6% of the non-oil and gas tax target has been collected, down from 31.5% in the same period last year.

Another planned twist to the tax law is to give alleged criminals, including alleged corruptors, tax evaders, illegal loggers, and illegal miners – but not terrorists and drug dealers – pardon from their crimes if they bring back their ill-gotten money to Indonesia. They will have to pay 10-15% of their ‘crime value’ to the government as bail, and the rest would be shifted to government bonds with maturities of between five to ten years. In the status quo, tax evaders are required by law to pay all of their back-taxes and a fine of double the money owed.

This move alone, which would hopefully be finalized by October, is projected to add IDR 100 trillion to the tax income. In 2008, then-president Yudhoyono implemented a similar program called the ‘sunset policy’, which successfully increased tax revenue by 30%.
Controversy

The government’s plan has been criticized by tax experts and financial analysts, with many seeing it as only a temporary fix which could potentially result in more dangerous problems in the future.

“It is such a controversy. It’s not fair for those who have been [tax] compliant. When the policy is implemented, they will most likely become less obedient. We need to improve taxpayer compliance first, then we deal with amnesty,” said Setyo Budiantoro, director of Prakarsa, an economics research center.

“It’s not a long-term fix. You can get a one-off increase, but that doesn’t necessarily mean that over time the tax collection would be better,” opinioned Santitarn Sathirathai of Credit Suisse to the Jakarta Globe. He also advised the government to lower the tax rate to increase the attractiveness of the Rupiah, and boost tax collection capabilities instead.

Meanwhile, the government is confident that the proposed bill would be efficient, considering the near-future increased exchange of tax data between countries. New international measures to fight global tax evasion is currently being developed by the OECD, and is planned to be launched in September 2017. Nations will have to comply with stricter reporting requirements and increased data exchange.

“There will be transparency in 2017, banking secrecy will end, everything will be open. Remember, it will happen in Singapore as well. Don’t toy with us… I’ll say it’s better to ask for tax amnesty rather than be sorry. We haven’t been able to check or punish the tax evaders because we don’t have a sufficient IT infrastructure. The IT system at the directorate general of taxes is improving and will be ready to identify those evaders in 2017,” warned Suryadi Sasmita, member of the government’s Tax Revenue Optimization Team (TOPP).

Regardless of the pros and cons, the proposal would have to win the approval of the House of Representatives. So far, the road forward seems smooth. In a rare sign of the House’s agreement with the ruling government, Mukhamad Misbakhun from the House’s Commission IX, which oversees finance affairs, has penned an opinion column supporting the government in the Jakarta Post.