Tax Amnesty Program Indonesia: First Phase Extended?
According to reports in Indonesian media, President Joko Widodo is willing to extend the deadline for the first phase of the government's tax amnesty program. Originally, this first phase, which sets the most attractive tax rates for those who decide to declare previously undeclared assets and - if desired - repatriate their offshore assets into Indonesia, was designed to end on 30 September 2016. Rosan Roslani, Chairman of Indonesia's Chamber of Commerce and Industry (Kadin Indonesia), said Widodo is willing to extend the deadline on request of Indonesia's business community.
There are several reasons why Indonesia's business community requests for an extension of the first phase of the government's tax amnesty program (and thus can enjoy more attractive tax rates). Firstly, the first month of the program - it was launched in July 2016 - was basically a holiday period with the ending of the holy Islamic Ramadan month and the subsequent Idul Fitri holidays (when business in Indonesia comes to a near complete standstill). Moreover, the government's socializing of the amnesty program was rather late, specifically the Finance Ministry's regulations regarding special purpose vehicles.
There was uncertainty about whether taxpayers also need to declare offshore trusts (a fiduciary arrangement that allows a settlor to transfer control of assets to a trustee who manages the assets for the benefit of a beneficiary) in the tax amnesty program. Finance Ministry Regulation No. 127 now provides the legal base to declare assets that are owned indirectly through offshore trusts. However, the business community is still waiting for an additional Finance Ministry Regulation that explains the types of trusts and whether settlor or beneficiary are to bear the income tax.
Secondly, there are big Indonesian businessmen - who own hundreds or even thousands of companies - eager to participate in the tax amnesty program but require time to calculate and consolidate assets and their business structure. Meanwhile, in order to set up shareholder meetings there must at least 2 x 14 days' notice (hence 28 days).
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
A third reason, which was not expressed by Indonesia's business community, is that taxpayers are still waiting for the Constitutional Court's decision whether the government's tax amnesty program is indeed in line with the nation's constitution. This review is expected to be completed somewhere in late October 2016.
Read more: Tax Amnesty Program of Indonesia Reviewed by Constitutional Court
However, Indonesian Finance Minister Sri Mulyani Indrawati said there are no plans to extend the deadline of the tax amnesty's first phase. Therefore, it remains unknown whether President Widodo was paying lip service to the business delegates that visited the Presidential Palace in Jakarta on Thursday (22/09) or there will be a revision made to the first phase of the tax amnesty program.
Meanwhile, Tito Sulistio, President Director of the Indonesia Stock Exchange (IDX), said is supportive of an extension of the first phase of the tax amnesty program. Given that people usually act at the last minute, it would be a win-win situation to allow them to enjoy the cheapest tax rates.
Kadin Chairman Roslani said dozens of Kadin members are planning to participate in the amnesty program, submitting their tax reports on Tuesday 27 September 2016 in a joint event.
Weak Asset Repatriations into Indonesia
Meanwhile, there are analysts who argue that the government should make the rates for asset repatriations into Indonesia more attractive. While, tax declarations - and hence additional state income - have been speeding up after a slow start, asset repatriations remain scarce. The reason for this poor performance is that tax rates offered in the so-called tax havens are much more attractive. Moreover, taxpayers who repatriate their funds to Indonesia are required to keep their assets in Indonesia for at least three years.
Tax Amnesty Program Indonesia - Score So Far:
| Target (in IDR trillion) |
Per 20 Sep '16 (in IDR trillion) |
Achieved | |
| State Income |
165.0 | 27.1 | 16.4% |
| Declaration of Funds | 4,000.0 | 1,131.4 | 28.3% |
| Repatriation of Funds | 1,000.0 | 58.6 | 5.9% |
Source: www.pajak.go.id/statistik-amnesti
By collecting more tax income through the tax amnesty program the government is eager to plug a widening budget deficit. Meanwhile, fund repatriations should give a boost to overall economic growth. Indonesia's tax-to-GDP ratio is currently very low at around 12 percent due to weak tax compliance and weak law enforcement. It is estimated that Indonesians "hide" some USD $250 billion in offshore assets (most of which - some USD $200 billion - located in Singapore).
On Thursday (22/09), Indonesia's Finance Ministry announced that more than 100,000 Indonesians have joined the tax amnesty program, declaring over USD $110 billion worth of assets so far.
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