Tax Amnesty: Singapore Banks Eager to Keep Indonesian Assets Offshore
Allegedly, several Singaporean banks try to keep Indonesian funds within the country by offering tax incentives to their Indonesian clients. These banks are concerned that Indonesia's tax amnesty program will lure taxpayers to repatriate their funds into Indonesia. Under Indonesia's amnesty program tax evaders obtain tax incentives (and impunity from prosecution) to declare and - if desired - repatriate their offshore funds into Indonesia. Although it is illegal to request Indonesian clients not to declare these assets to Indonesian tax authorities, it is legal to offer an incentive to keep the assets in Singapore.
Apparently, Indonesian businessmen who keep hold funds at Singaporean banks have been approached by private agents - allegedly hired by these Singaporean banks - who offer a special scheme to the Indonesian customer (these reports were confirmed by Yustinus Prastowo, Executive Director of the Center for Indonesia Taxation Analysis, or CITA). The Singaporean banks offer to pay the difference between the tax tariffs that apply to the declaration and the repatriation of funds.
An illustration: according to the tax amnesty program, an Indonesian taxpayer is required to pay a four percent tariff on the offshore funds he/she declares (if he/she declares these funds before 31 September 2016). However, if he/she not only decides to declare these funds but also repatriates these funds to Indonesia (before 31 September), then a two percent tariff applies (implying a two percent difference in tariffs for declaration and repatriation). In this case the Singaporean banks would offer to pay the two percent difference in order to keep the funds in Singapore.
According to Indonesian Vice President Jusuf Kalla, the actions taken by Singaporean banks actually show what is already being suspected: a lot of Indonesian money is secretly stashed in Singapore.
Tax Amnesty Program Indonesia - Tax Tariffs:
| Period | Tax Tariff |
|
| Declaration of Funds | 1 July - 31 September 2016 | 4% |
| 1 October - 31 December 2016 | 6% | |
| 1 January - 31 March 2017 | 10% | |
| Repatriation of Funds | 1 July - 31 September 2016 | 2% |
| 1 October - 31 December 2016 | 3% | |
| 1 January - 31 March 2017 | 5% |
Source: Indonesian Finance Ministry
It is not the first hurdle for the tax amnesty program. Last week, various legal activists in Indonesia, gathered in the One Justice Foundation (Yayasan Satu Keadilan) and the Indonesian People's Struggle Union (Serikat Perjuangan Rakyat Indonesia), filed for a judicial review of Indonesia's tax amnesty bill at the Constitutional Court on claims that the program will basically legalize money laundering, protects criminals, teaches (faithful) Indonesian citizens not to pay taxes, and - more generally - forms an unfair program from a social perspective. It is, however, not expected that Indonesia's Constitutional court will reject the tax amnesty bill. In fact, if the bill indeed survives a judicial review it could have a positive impact as it enhances perceptions about legal certainty regarding the program.
Do you think that Indonesia's tax amnesty program will be a success?
Voting possible: -
Results
- Yes, I do (50.6%)
- No, I don't (32.8%)
- I don't know (16.6%)
Total amount of votes: 2421
Diplomatic relations between Indonesia and Singapore have become under some pressure since the second half of 2015 when massive forest fires on the Indonesian islands of Sumatra and Kalimantan caused a severe and toxic haze that spread to Singapore (and other parts of Southeast Asia). This haze caused economic costs as some Singaporean businesses and schools had to close temporarily (as pollution reached hazardous levels).
Singapore later announced it would try to sue those that are responsible for the forest fires and bring them to Singaporean courts. Indonesian authorities, however, said this would be a violation of Indonesia's sovereignty and questioned how Singapore can in fact prosecute Indonesian citizens for the haze, especially in the absence of a ratified extradition treaty between both countries.