Singapore has refuted allegations that it was trying to undermine Indonesia's new tax amnesty scheme.
The embassy in Jakarta yesterday said in a statement that Singapore did not cut its tax rates or change any of its policies in response to a tax amnesty Bill passed by Indonesia last month.
Separately, a joint statement from the Finance Ministry and Monetary Authority of Singapore (MAS) said: "Recent claims that Singapore is implementing policies to 'thwart' Indonesia's tax amnesty programme are untrue."
Singapore was responding to media reports here insinuating that it had attempted to block the return of funds from its banks to Indonesia, ostensibly over fears that the Republic may lose billions of dollars in Indonesian wealth stashed away in Singapore.
Indonesia is hoping that the tax amnesty, which officially came into force last Monday, would result in the repatriation of about 1,000 trillion rupiah (S$103.5 billion).
Under the new scheme, individuals will enjoy preferential tax rates, ranging from 2 per cent to 10 per cent, depending on how soon one declares previously untaxed assets and whether the funds are repatriated from overseas.
These rates are well below current personal income tax rates in Indonesia, which range from 5 per cent to as high as 30 per cent.
Only 27 million of Indonesia's 250 million population are registered taxpayers, with around a million actually filing tax returns.
Private bankers estimate that about US$200 billion (S$271 billion) in Indonesian wealth is managed by financial institutions in Singapapore.
House speaker Ade Komarudin, in a Bisnis Indonesia news report on Tuesday, urged Singapore not to sabotage the new tax amnesty scheme.
His comments on the online business news website followed media reports here that some financial institutions in Singapore were offering "special incentives" to Indonesian clients to encourage them to retain their assets in the city-state. "I hope that is not true because it will hamper the success of the tax amnesty law," said Mr Ade.
On Friday, Jakarta Globe news website quoted Center for Indonesia Taxation Analysis chief Yustinus Prastowo saying that several Indonesian businessmen had told him of similar approaches by "private agents" engaged by Singapore banks.
Mr Yustinus did not identify the banks or name the businessmen.
Indonesia's Finance Minister Bambang Brodjonegoro said in the same news report that he was unmoved by the rumours and was "not afraid of Singapore, which is just a small country".
He added that his ministry would work with Indonesia's embassies in Singapore, Hong Kong and London to promote the amnesty scheme overseas.
Vice-President Jusuf Kalla also commented on the local media reports about Singapore's purported attempts to encourage Indonesians to leave their funds on the island.
"Every country wants to survive," he was quoted as saying by Jakarta Globe. "It (only) proves what people always say, that most of the money stashed in Singapore comes from Indonesia."
Singapore has pointed out, however, that it has no interest in sheltering illicit tax monies and subscribes to "internationally agreed standards for combating money laundering and for exchange of information".
"If there is any case of suspected cross-border tax evasion, concerned authorities can approach Singapore - we have assisted and will continue to assist in line with international standards," the joint statement from the finance ministry and MAS said yesterday.
The comments by Indonesian leaders over the issue prompted a response from Singapore's Home Affairs and Law Minister K. Shanmugam, who said he did not understand why there was a "constant attempt" to taunt Singapore as a small nation.
"We are good friends with Indonesia in the last 50 years," Mr Shanmugam said on Facebook.
"Both countries benefit from this good relations. But every now and then, someone in Indonesia will tell us that we should know our place...
"Yes, we are a little red dot. We may be small. But we are respected and successful. And our people lead meaningful lives. And we don't live in fear of anyone else."
Industry observers have also dismissed the claim that Singapore was trying to derail Indonesia's tax plan by cutting its own income tax rates.
They said the tax rate for the highest income earners in Singapore would be going up for income earned this year.
Veteran banker Tan Su-Shan, who co-chairs the MAS private banking industry group, said it supports the Indonesian amnesty programme because it is a "useful tool for individuals to regularise their tax affairs with their respective tax authorities".
"Banks in Singapore will provide the necessary support for their clients who participate in the programme," added Ms Tan.
The Tax Amnesty Bill is the first piece of legislation ratified by a Parliament where President Joko Widodo has majority support for the first time since taking office in 2014.
He has called on errant taxpayers to come clean, warning them that "this opportunity will never come again as tax amnesty will not be repeated".
Activists from civil society groups such as the Peoples Struggle Union of Indonesia are critical of the plan, denouncing the amnesty as a "get out of jail free card" for tax evaders. Together with the One Justice Foundation, the group have filed for a judicial review of the law, which will be heard by judges in the weeks ahead.