JAKARTA — “Declare. Redeem. Relieved.” So reads Indonesia’s tax amnesty slogan, plastered on banners along a busy main road in suburban Jakarta. A month after the introduction of the new policy tax professionals say they have been inundated with queries from clients, suggesting that government efforts to convince tax evaders to come clean are paying off.
Indonesia hopes to net $76 billion from the amnesty, which ends on Mar. 31, 2017, to plug a fiscal hole caused in part by low tax receipts. According to the finance ministry, there are only 27 million registered taxpayers among Indonesia’s population of 255 million.
Tax professionals said that discounted tax rates of 2% to 5% offered under the amnesty — which compares with standard rates of 5% to 30% — would encourage evaders to come forward, especially as penalties for earlier non-payment would also be waived.
“There have been many that have expressed interest in the policy,” said Prijohandojo Kristanto, chairman of PB Taxand, a tax consultancy. “I think there will be many that come forward.” Prijohandojo said that many owners of private companies with assets abroad have been in touch about the technical aspects of the amnesty program.
However, he also said that a clearer explanation of the regulations is needed before some clients will come forward to declare their assets. The complex regulations include guidelines on the technicalities of the amnesty and on the instruments to be used to facilitate the repatriation of funds.
Maikel Sajangbati, CEO and founder of MaeSa Consulting Indonesia, a private banking and wealth management consultancy, said his clients in Singapore were eager to participate in the amnesty program. “To my Singapore clients, I explained the philosophy, the strategy, the planning, how it could benefit them, what is meant by declaration, what is meant by repatriation,” he said.
Singapore is a tax haven for rich Indonesians because of its low tax regime and its fierce protection of investor privacy. The city state is thought to hold a fair share of the estimated 3,140 trillion rupiah ($239.98 billion) of Indonesian funds parked abroad.
New tools
The expected flow of funds into the country has excited the banking sector, which is directly affected by the amnesty. Nine banks — four of which are state owned — have been mandated by the government to manage the repatriated funds. Dubbed “perception banks,” they will facilitate investments in instruments allowed under the tax amnesty law, such as government bonds, listed companies’ bonds and investments in some infrastructure projects.
Bank Mandiri, one of the state owned banks, has designed a number of investment products, such as mutual funds and treasury derivative products. It has also started to use its overseas branches to help promote its products, particularly in countries where Indonesians are known to store wealth, such as Singapore and Hong Kong.
The property sector is also predicted to benefit from the inflow of funds. Of the eight tax amnesty investment instruments specified by the government, two are property-related: real estate investment trusts and property investments through a private equity scheme. The property sector is hopeful that these two investment instruments will receive a big share of investments from repatriated funds.
Furthermore, according to Bank Tabungan Negara, Indonesia’s biggest mortgage lender, the amnesty will add to market liquidity, which is likely to prompt banks to reduce interest rates, including those for mortgages. This in turn could spur higher demand for mortgages.
BTN is seeking to absorb up to 50 trillion rupiah of the repatriated funds, which it said would be used to ease credit requirements for developers that seek to purchase land for subsidized housing projects. This will help to accelerate housing construction, assisting President Joko Widodo’s plan to build 10 million houses for low-income citizens by 2019.
A convenient escape
Ichsanuddin Noorsy, an economist and founder of Indonesian Political Economic Association, a think tank, said the expected high compliance rate was driven mainly by fears of the 2018 rollout of the Automatic Exchange Of Information initiative developed by the intergovernmental Global Forum on Transparency and Exchange of Information for Tax Purposes.
Under the AEOI, financial institutions will be required to report information on accounts held by all foreign individuals and entities to their respective tax administrations. This information would then be forwarded to the account holders’ countries of residence annually.
The AEOI is a part of a global effort to crack down on tax evasion that more than 90 jurisdictions have so far agreed to implement, including Singapore. With time quickly running out, tax professionals say Indonesians with assets abroad will see the amnesty program and all the benefits it offers as a convenient way out.
Another factor forcing taxpayers to come clean through the tax amnesty policy, observers said, is the recent revelation of offshore entities in the so-called “Panama Papers.” It was revealed in the leaked documents held by an international law firm that at least 3,500 Indonesian individuals and companies used offshore entities to hide their assets to avoid tax obligations.
Maikel said that there were also lingering concerns about the confidentiality of the amnesty program, although the government had promised strict protection of private information and pledged not to use it to prosecute anyone.
Another concern is that future income from newly declared sources will be taxed at higher rates after the expiry of the amnesty. Furthermore, some wealthy individuals are worried that repatriated funds may be locked in the country for three years, which could expose them to economic and financial risks.
Still, Maikel said he expects the program to be a “massive success” because his clients recognize the benefits of participating.
“I only had one advice to them: Take advantage of this opportunity because this this will not come again,” said Maikel. A differently structured amnesty in 2008 brought in only around 5.5 trillion rupiah throughout its year-long life.
Penulis : ARDI WIRDANA
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