Indonesia plans to install tax officials in countries considered tax havens for recalcitrant local companies, which regularly evade taxes and cause the country significant losses in potential revenue.
Director general of taxation Darmin Nasution said Friday the placement of tax officials was part of a breakthrough effort to help stem state losses in potential tax revenue paid by big corporations.
“We [the Finance Ministry] have sent a letter to the Foreign Ministry requesting placement of tax officials in several capitals in the world,” said Darmin, who was recently been nominated senior deputy governor of the central bank.
“We don’t need to place [our officials] in all capitals, only those related to our economic activities even though if they are not tax havens. China and Singapore, for example,” he added.
According to the tax office, some countries have cut their tax rates in attempt to attract investment from neighboring countries.
Although these countries might not be categorized as tax havens, they had caused revenue loss of neighboring countries, Darmin said.
The tax office is preparing a list of countries categorized as tax havens that will be issued soon.
“Maybe our [tax] laws are not wide enough to provide room for us to determine what we can do to tax havens. But we are sure of finding solutions to that,” said Darmin.
A tax haven is a place where taxes are either nonexistent or deliberately low, with the aim of intentionally evading tax payment.
Notorious tax havens include countries such as Mauritius in Africa, the Cayman Island in the Carribean, the British Virgin Islands, Bermuda in the Caribbean, Switzerland, Seychelles, Hong Kong and Macau.
“Many countries or investors operating here are not registered here [in Indonesia]. Businesses
deliberately blur the line between their country of origin and the countries they operate within, in order to avoid paying tax,” said Darmin.
He said such an approach resulted in lost tax revenue, which had been occurring for the past
Darmin cited the example of the Asian Agri Group and transfer pricing, where they kept records in Hong Kong or Macau, even though they operated in Indonesia.
“It’s not easy to trace because it’s hard to get information from a company that is a unit of one of our companies here,” he said.
He added the tax office could not rely on other institutions, including Indonesian embassies, to investigate these cases due to the amount of time and resources such an investigation would require. Due to these considerations, the tax office must place officials overseas.
“They’re not auditors, more a kind of economic intelligence as we are unable to check [tax files] abroad. But we can collect information from abroad,” said Darmin.
Indonesia’s income tax rate for the corporate sector is at 28 percent this year, and will be cut to 25 percent in 2010, under the income tax law endorsed last year.
The figure is relatively high in comparison to neighbouring countries.
A recent meeting of the Group of 20 countries (G20) in London agreed to force tax havens to give up their privileges or risk being financially ostracized by developed economies. Tax evasion and corporate information secrecy provided by tax havens has been blamed by governments and economists for exacerbating the economic downturn.