The tax directorate general is preparing a bill that will grant amnesty to criminals — except drugs offenders and terrorists — as long as they agree to bring in their ill-gotten money to Indonesia under the government’s terms and conditions.
The proposal has been controversial among tax experts, who say it could reduce tax compliance overall, but the government believes that when it is coupled with ambitious new measures to reform the international tax system, it will work.
“There will be a transparency in 2017, banking secrecy will end, everything will be open. Remember, it will happen in Singapore as well,” said Suryadi Sasmita, the vice chairman of the Indonesian Employers Association (Apindo) and a member of the government’s tax revenue optimization team (TOPP).
The new measures to fight global tax evasion, developed by the OECD and slated to start in September 2017, will see tighter country reporting requirements and increased exchange of tax data.
Indonesia and several other Southeast Asian countries, such as Singapore and Malaysia, have agreed to start the automatic exchange in September 2018.
“Don’t play with us … I’ll say it’s better to ask for tax amnesty than be sorry,” said Suryadi.
Under the governments amnesty plan, corruptors, tax evaders, and forest and mining illegal poachers will be offered a remission if they pay 10 percent to 15 percent of the value of their crime to the government.
The offenders must also shift some of their “investment portfolios and cash” into government bonds with maturities of five to 10 years.
Presently, tax evaders are required to pay all of their back-taxes and fined 200 percent of the money owed, even before they can plead their case in court.
According to research by American consulting firm McKinsey & Company, Indonesian citizens have approximately Rp 4,000 trillion ($300 million) in assets and funds in Singapore. The tax office says depositors seek to benefit from the city-state’s lower tax rate and financial secrecy, and suspects some of the funds are ill-gotten.
McKinsey & Company found Indonesians also kept assets and funds in Hong Kong, Switzerland, Luxembourg and the Cayman Islands.
“We haven’t been able to check or punish the tax evaders because we don’t have a sufficient IT infrastructure,” Suryadi said.
“[The] IT system at the directorate general of taxes is improving and will be ready to identify those evaders in 2017.”
The tax office estimates the tax amnesty could bring at least Rp 100 trillion ($7.48 billion) to state coffers.
John Hutagaol, taxation rules director II at the directorate, declined to elaborate on the timing and extent of the tax amnesty plan.
“We are still [studying it] internally,” John said.
The government had launched similiar tax remission programs in 1984 and 2004 but failed to attract any interests from offenders because they were not backed with a law that offered amnesty. Many tax experts are similarly skeptical of the latest proposal.
Yustinus Prastowo, executive director of non-governmental organization Center for Indonesia Taxation Analysis (CITA), said the government must earn taxpayers’ trust by providing an assurance on confidentiality, good tax administration, post-amnesty law enforcement and other incentives.
“It’s better for the government to offer amnesty for criminals and guarantee their surrender will not be used for other purposes,” he said.
Most importantly, the government should provide political conditions that are conducive for businesses, Yustinus said.