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Indonesia’s Tax Amnesty: Part Of A Bigger Picture

Posted by Andrzej Barski on 8th July 2016
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tax amnesty the clock is ticking

I’m a simple man not a simpleton; I like my coffee hot, my food to be natural and not from a genetically modifying laboratory and my cold beer to be cold. Simple. I also like to have things explained in a way that I can easily understand. Some may argue this is a sign of ignorance, maybe it is, maybe it means I’m not the shiniest spoon in the drawer but it works for me, so before you start throwing numbers and statistics and laws and regulations and toys out of the pram you need to know that I’m not a tax expert. Far from it actually, but I have been following one of the hottest topics in Indonesia right now and I’d like to share my thoughts with you even though they may be simple.

 

Jokowi’s administration has been talking about something called a tax amnesty for some time now. I must admit I was one of those skeptics who smirked when I first heard this. I immediately thought of the old school tie network, which as you may know is a reference to the preservation of social elites. Typical, I thought: let the ultra-rich off the hook, get some colossal kickbacks and continue to wallow in the stench of corruption.

 

But I think I was too quick to judge. The more I read about Jokowi’s initiatives the more I realized he wasn’t like presidents past. He genuinely has the prosperity of the country and its citizens at heart and he’s seeing an opportunity to assist the country’s infamously inefficient tax system and give some desperately needed areas of the economy a much-needed boost.

 

The Indonesia Investments website laid out a simple explanation for me: The tax amnesty program of Indonesia is designed to run for nine months (from July 2016 to March 2017) and is targeted to cause the repatriation of trillions of rupiah worth of offshore assets into Indonesia.

 

The House of Representatives approved the tax amnesty in late June and last Friday, July 1, Jokowi gave a speech at the Indonesian tax office HQ in Jakarta and launched it.

 

But why?

 

The government needs those assets injected into the economy to build a new Indonesia. And they can’t do this by collecting taxes in a conventional sense. Did you know that there are only 27 million registered taxpayers in Indonesia but it has a population of over 260 million people? … and counting. You probably didn’t, so let me put that into perspective, because to some 27 million is already of a lot of people. And it is, especially when you consider the population of Australia is just over 24 million.

 

When you put that number against the 135 million eligible taxpayers you can see that the country is falling royally short of potential funds. But it gets worse. Out of the 27 million registered taxpayers only 10 million of these actually fulfill their tax obligations! It seems that tax evasion is a national sport in Indonesia.

 

Hey, hang on a minute! That’s a bit close to the bone isn’t it? I don’t think it is. I think tax evasion is a global issue, not a national problem, so before you self-righteous pots go calling Indonesia’s kettle black, let me remind you of the Panama Papers; ah yes… those pesky leaked documents that reveal more than 300,000 politicians, criminals and rogues in 21 jurisdictions tried to hide behind secret and decidedly dodgy offshore structures for the sole purpose of tax evasion.

 

You see, the writing is on the wall. The Panama Papers brought the whole issue of tax and its evasion into the forefront of public forums. The ‘little people’ who struggle to make ends meet suddenly became aware that there is a double standard just like the conspiracy networks have been saying for years. There’s no turning back from that sort of publicity and 94 countries and territories around the world, including Indonesia, Singapore, Hong Kong and Switzerland have decided to join forces to make a show of fighting back by exchanging information to combat tax evasion. OCBC Bank economist Wellian Wiranto suggests that “the carrots dangled by the amnesty could soon contrast with the sticks presented by a global timeline for authorities to share information about bank accounts across borders by 2018”.

 

Now the idea of a tax amnesty, for those who decided it was better to stash their loot in countries with more advantageous tax laws such as Singapore and Hong Kong, takes on a different meaning. They’ve got to do something because if they don’t they’re likely to get slammed at some point, and that day is fast approaching.

 

Better the devil you know.

 

So, what about those carrots?

 

Simple; bring your money home and expect very low tax rates ranging from between 2% and 10% compared to the normal rates of between 5% to 30%. When you’re talking about many, many millions – sometimes billions of dollars, those percentages can add up to a whole lot of money ‘saved’ from the hands of the taxman.

 

Not only that those that do repatriate their funds won’t be penalized for not doing it before. They’ve got until September to get the very special ‘early bird discount rates’ and the longer they wait the bigger the cut the taxman will get. It’s a pretty juicy carrot.

 

Jokowi says his plan is not to pardon those who have been hiding their money in overseas accounts but to encourage them to bring it home to stimulate the economy, particularly in the infrastructural and social development of the country. The idea, as far as my simple mind can make out, is to channel the repatriated funds into the following investment instruments:

  • Government bonds
  • State-owned enterprises’ bonds
  • Corporate bonds
  • Time deposits and savings at designated lenders (probably the big state-controlled banks)
  • Mutual funds
  • Collective investment contracts
  • Real estate investment trust (REIT)
  • Property investment through a private equity scheme (RDPT).

The only caveat is that the money has to stay in Indonesia for at least three years. He’s even talking about creating Tax Havens within Indonesia so people don’t need to look overseas and hide it in downtown Panama.

 

Jokowi is being transparent. He’s appealing to whatever ethics, morals and conscience these people have left. He’s appealing to a sense of national pride, social welfare, humanity and justice, which are the underlying principles of Pancasila, upon which the modern state of Indonesia was born. And, you know what, a simple man like me thinks it might just work!

 

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