Businesses grapple with how to respond to Indonesian tax amnesty programme

With the goal of expanding the country’s tax base and reducing corporate tax from 25% to 17%, Indonesia’s tax amnesty programme, which is open to individuals and businesses, was launched in July and will close on March 31 next year. Despite its nine-month length, the programme offered the most beneficial tax rates to taxpayers who made declarations and repatriated funds before September 30 2016.

As of October 16, these are the top countries for repatriated funds and declared assets.

Top countries for repatriated funds:

Singapore IDR87.9 trillion ($6.56 billion)

Cayman Islands IDR16.5 trillion

Top countries for declared assets:

Singapore IDR731 trillion

Cayman Islands IDR152.8 billion

Hong Kong IDR152.8 billion

In terms of declared and repatriated assets and the government’s targets, the numbers are:

Declared: IDR3,843 trillion, 96% of the target

Repatriated: IDR143 trillion, 14.3% of the target

The government has pledged that to encourage people to participate, it will not investigate the source of funds. So far, the government has received IDR947 billion in tax as a result of the programme. A total of 8,500 new taxpayers have been added to the tax office’s database since the program was launched.

The programme is split into three equal periods of time, with taxpayers who declare and repatriate funds as early as possible being able to avail of the most favourable tax rates. For the declaration of funds the tax rates are:

  • July 1 to September 30 at 4%
  • October 1 to December 31 at 6%
  • January 1 to March 31 at 10%

For repatriation the tax rates are:

  • July 1 to September 30 at 2%
  • October 1 to December 31 at 3%
  • January 1 to March 31 at 5%

 

Aims of the programme

Muslimin Damanhuri

“The tax amnesty programme is a continuation of the previous initiative to expand the tax base from 2008/2009 since the result was not good,” says Muslimin Damanhuri, tax partner at Assegaf Hamzah & Partners. “The goal is to develop an information system that is linked to the lands office, capital markets and central bank so that there is a more comprehensive system to increase tax revenue.”

For example, if a person declares assets in building and land under the tax amnesty programme, the information would be linked to the lands office and with a cross-check, the government can find out how much revenue the land generated and make sure the tax is settled.

“There is also a goal to protect the tax treatment differential between jurisdictions. With the amnesty programme, there will be automatic exchange of information in 2018 between the different agencies and there will be no place to hide,” says Damanhuri. Indonesia will also be participating in the Common Reporting Standard initiative, the global automatic exchange of information programme to be implemented by 2018 under the auspices of the OECD.

Businesses taking wait and see approach

Though the details have been ironed out after some confusion at the beginning, some businesses are taking a wait-and-see approach as they try to work out how much money they will save, if any, by participating in the programme.

 “In the first two months, people were struggling with questions on offshore funds and how to declare them but after three rounds of changes, taxpayers had more clarity,” says Damanhuri. “The government has been pursuing businesses to participate by putting their audits process on hold to give companies more time to prepare the documentation.”

“Taxpayers need to be careful with reporting to the government and make sure what is reported is consistent,” adds Damanhuri. “While audits have been put on hold from July to September, the tax office has started intensifying tax audits”.

Businesses should make sure amounts declared to the tax office in tax audits match with the amounts provided for in the tax amnesty programme. They should also watch for future tax law changes, especially regarding harsher tax enforcement, as measures may be taken against tax evaders.