Tax Amnesty Indonesia: Regulations for Asset Repatriations Eased

After the first phase of Indonesia's tax amnesty program ended on 30 September 2016, the momentum that was gained in September after several big Indonesian businessmen joined the program, is expected to wane. The key reason being that in the second phase higher tax tariffs are charged and thus makes it less attractive for taxpayers to declare and/or repatriate previously undeclared assets.

Regarding asset repatriations, however, momentum still needs to be generated in the remainder of the program in order to achieve the government's target. Authorities want to see IDR 1,000.0 (approx. USD $77 billion) worth of inflows (from abroad) - by 31 March 2017 - into the investment instruments that have been prepared by the government and financial authorities. However, up to Sunday evening (16/10/2016) only IDR 142.5 trillion worth of assets have been repatriated, or only slightly over 14 percent of the government's target.

To boost momentum, the government decided to ease regulations concerning fund repatriations:

1. Also non-cash assets can be repatriated (including global bonds)
2. Asset repatriations can be conducted gradually. However, in line with earlier regulations, only when all assets have been repatriated by the taxpayer the "three-year lock up" rule starts. This rule means that repatriated assets are required to remain in Indonesia (in the investment instruments) for at least three years
3. Asset repatriations are now also allowed in the form of a capital injection in a local company (limited liability company) and the company can freely use these funds for its business activities
4. Funds that have been repatriated to Indonesia after 31 December 2015 are now included into the amnesty program
5. Reduce paperwork to lessen the administrative burdens at gateway banks in Indonesia
6. Indonesian banks can liquidate offshore assets of taxpayers who default on their loans, giving leeway for lenders to recover losses
7. It has been made easier for taxpayers to declare profits from offshore investment

Indonesian Finance Minister Sri Mulyani Indrawati said it is important to ease regulations regarding fund repatriations as she detected strong appetite from Indonesian taxpayers to declare assets their that are stashed offshore, but little appetite to move these assets into Indonesia. Indrawati added that of all declarations of offshore assets around 45 percent constitute investment and bonds (hence assets that are difficult to repatriate instantly).

For example, Singapore. It is a public secret that most undeclared funds owned by Indonesians are stashed in Singapore (perhaps some USD $200 billion worth of assets). Therefore it is no surprise that most foreign fund declarations under Indonesia's amnesty program concern assets stored in Singapore. Since the start of the program Indonesian taxpayers declared IDR 730.8 trillion (approx. USD $56 billion) worth of assets in Singapore. However, only IDR 87.9 trillion have been repatriated.

Largest Foreign Sources of Asset Declarations/Repatriations:

Country	Declaration (in IDR trillion)	Repatriation  (in IDR trillion)
Singapore	730.8	87.9
Virgin Islands	75.9	2.7
Cayman Islands	52.8	16.5
Hong Kong	52.8	14.4
Australia	38.5	1.4

^{Source: Investor Daily}

Tax Amnesty Program Indonesia - Score So Far:

	Target (in IDR trillion)	Per 16 Oct '16  (in IDR trillion)	Achieved
State Income	165.0	97.5	59.0%
Declaration of Funds	4,000.0	3,842.9	96.0%
Repatriation of Funds	1,000.0	142.5	14.3%

^{Source: www.pajak.go.id/statistik-amnesti}

Tax Amnesty Program Indonesia - Tax Tariffs:

	Period	Tax Tariff
Declaration of Funds	1 July - 30 September 2016	4%
	1 October - 31 December 2016	6%
	1 January - 31 March 2017	10%
Repatriation of Funds	1 July - 30 September 2016	2%
	1 October - 31 December 2016	3%
	1 January - 31 March 2017	5%

^{Source: Indonesian Finance Ministry}

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