Indonesia to Enforce Strict Supervision at PFII to Prevent Round-Tripping

The government is enforcing strict supervision at the International Financial Centre Indonesia (PFII) to prevent round-tripping practices. Round-tripping refers to the transfer of domestic funds or capital abroad, which is then brought back into the country as foreign direct investment (FDI) to obtain tax incentives. Director General of Financial Sector Stability and Development at the Ministry of Finance, Herman Saheruddin, stated that all businesses wishing to operate in the PFII must comply with international regulatory standards to minimise potential misuse of investment facilities. “That (round-tripping capital) must be mitigated. Because the PFII, a financial centre, is strict. It must comply with international regulators. For instance, if such a thing occurs, the screening must also be stringent,” Herman said when met at the Parliament Complex in Jakarta on Wednesday. He explained that the investor screening process would follow global standards applied in other international financial centres. “If you look at other financial centres, the point is that entering them is complex, the process is complex, but there are incentives for entering. However, once inside, they must comply with the existing regulations,” he clarified. He added that the government would also prepare rules regarding company ownership, including instances where there is ownership by Indonesian citizens. According to Herman, the PFII is not only intended to become an international financial hub but is also expected to boost economic growth by leveraging the country’s substantial domestic resource potential. Furthermore, Herman affirmed that the government would continue to comply with international tax standards, including the Global Minimum Tax (GMT) provisions, and would therefore not provide excessive incentives to attract investment. “We must still comply with the global minimum tax. Regarding incentives, the point is so we can compete with others, but the details are still being formulated together with the DPR,” he said. Previously, Telisa Aulia Falianty, a Professor at the Faculty of Economics and Business, University of Indonesia (FEB UI), noted in her study that round-tripping is one of the risks that needs to be anticipated in the future development of the PFII.