Tax Amnesty Program of Indonesia is Constitutional, Says Court
Indonesia's Constitutional Court declared the government's tax amnesty program as "constitutional". In July 2016 a group of legal activists had filed for a judicial review of the central government's tax amnesty program on claims that the program would turn money laundering into a legal practice, would protect criminals, would teach Indonesian citizens not to pay taxes, and would generally constitute an unfair program from a social point of view. The court rejected these arguments.
The nine-month tax amnesty program of Indonesia was introduced in July 2016. Under this program tax dodgers are offered attractive tax rates to declare and/or repatriate their offshore funds into Indonesia (into specific investment instruments). The primary aim of the tax program is to collect fresh funds that are to be used for Indonesia's economic development, while increasing the nation's taxpayer database. The Indonesian government estimates that some IDR 4,000 trillion (approx. USD $301 billion) worth of "Indonesian money" is secretly stashed abroad in tax havens such as Singapore, Panama, London, Hong Kong and the British Virgin Islands.
Prior to the program, there were only 27.6 million registered taxpayers in Indonesia, while the nation's workforce numbers 115 million (and the total population numbers 255 million). As such, Indonesia has a very weak tax-to-GDP ratio at around 11 percent (this is a problem as tax revenue is the largest source for total government revenue). According to the latest data, almost 500,000 people joined the tax program, declaring a total of more than IDR 4,000 trillion (approx. USD $301 billion) of previously undeclared assets (more than 3/4 of these assets are domestic assets).
The legal activists who oppose the tax amnesty program are gathered within the One Justice Foundation (Yayasan Satu Keadilan) and Indonesian People's Struggle Union (Serikat Perjuangan Rakyat Indonesia). Despite the judicial review, the central government went ahead with the implementation of the tax program in July 2016.
Contrary to expectations, the first phase of the tax program (July-30 September 2016), when the most attractive tax rates were offered, was highly successful in terms of asset declarations. Asset repatriations, on the other hand, were not a success.
Meanwhile, in the second phase of the program (1 October-31 December 2016) the program lost its momentum. It is not expected that the verdict of the Constitutional Court can breathe new life into the program. It is, however, possible that those tax dodgers who plan to declare assets in the 2nd phase of the program wait until just before the deadline (31 December 2016) to join in the program. But, overall, we expect most of declarations and repatriations to have occurred during the first phase of the program.
Tax Amnesty Program Indonesia - Score So Far:
| Target (in IDR trillion) |
Per 12 Dec '16 (in IDR trillion) |
Achieved | |
| State Income |
165.0 | 95.7 | 58.0% |
| Declaration of Funds | 4,000.0 | 3,998.8 | 99.9% |
| Repatriation of Funds | 1,000.0 | 143.6 | 14.4% |
Source: www.pajak.go.id/statistik-amnesti