JAKARTA - Indonesian lawmakers on Tuesday (June 28) finally passed a new tax amnesty Bill aimed at encouraging wealthy citizens with billions of dollars in assets abroad to come clean with the taxman.
The new law will also grant reprieve for businesses in the form of a lower tax rate for small- and medium-sized enterprises.
Under the new law, tax rates will range from 2 per cent to 10 per cent, depending on how quickly an individual declares his assets and whether the assets are repatriated to Indonesia. This is higher than the 1 per cent to 6 per cent proposed in a draft bill earlier this year.
For instance, taxpayers who declare their assets and repatriate them within the first three months after the law is passed will enjoy the lowest 2 per cent tax rate. The rate would increase to 3 per cent after three months, and to 5 per cent, after six months, and so on.
For assets declared but not repatriated a rate of 4 per cent is applied, rising to 6 per cent and then 10 per cent in subsequent three-month periods.
Small businesses with an annual revenue of up to 4.8 billion rupiah (S$494,136) will be taxed at a rate of 0.5 per cent if their declared wealth is below 10 billion rupiah. A rate of 2 per cent will apply for those with declared wealth of above 10 billion rupiah.
The new Bill was pushed through in Parliament after a plenary session led by House Speaker Ade Komarudin after months of deliberation.
Current personal income tax rates in Indonesia range from 5 per cent to as high as 30 per cent, while businesses are taxed at a rate of up to 25 per cent.
Only 27 million of Indonesia's 250 million population are registered taxpayers and only around a million people file tax reports.
Some US$200 billion (S$271 billion) in Indonesian wealth are thought to be stashed in Singapore, according to private bankers and wealth managers.
The Indonesian government is hoping that the tax amnesty will help raise 165 trillion rupiah, which will increase revenue by 11 percentage points.
Markets having been keeping close tabs on the new tax amnesty policy, said experts.
"Policymakers at Bank Indonesia and the Ministry of Finance expect the tax amnesty to raise revenue worth between 0.4 per cent and 1.3 per cent of GDP," said Ms Deyi Tan, an Asean economist for Morgan Stanley.
"While a tax amnesty would provide a near-term boost to fiscal revenue, what is more important is what policymakers do afterwards as part of fiscal reforms to improve tax compliance and collection."
In a bid to stay competitive with tax rates in region, Indonesia also plans to cut its corporate tax rates to 20 per cent this year from 25 per cent, said Finance Minister Bambang Brodjonegoro in April this year.