Indonesia's parliament set to pass new tax amnesty law next week

The headquarters of Indonesia's tax office in Jakarta, on May 26, 2016.
The headquarters of Indonesia's tax office in Jakarta, on May 26, 2016.PHOTO: REUTERS

JAKARTA - Indonesia is set to pass a new tax amnesty law in the next Parliament session early next week after a working committee consisting of MPs and government officials approved late on Friday (June 24) details of the proposal, after months of deliberation.

The law aims to encourage wealthy citizens with billions of dollars in untaxed assets hidden abroad such as in Singapore, as well as at home, to come clean with the taxman by declaring these assets. 

A government official involved in the deliberations confirmed with The Straits Times that under the tax amnesty law, the government will tax these assets held by individuals or companies, between 2 per cent to 10 per cent, a higher range from that previously considered. 

 

The tax rate applied will depend on how quickly the assets are declared, and whether these are repatriated.

Economists have said that the scheme could increase Indonesia's tax base and help the Budget amid weak economic growth and falling commodity prices. 

Only 27 million of Indonesia's 250 million population are registered taxpayers and only around a million people filed 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 majority of the Parliament factions in the working committee have agreed to the details of the new tax, officials say.

Only three of the 10 factions - the Indonesian Democratic Party for Struggle (PDI-P), Democratic Party and Prosperous Justice Party (PKS) - were opposed to the passing of the law. They demand a much higher range of tax rate of between 10 per cent and 30 per cent, to similarly reflect the current personal income tax rates that range from 5 per cent to 30 per cent.

Under the scheme, a tax rate of two per cent applies if the asset is declared and repatriated within the first three months after the law is passed. 

The rate would increase to four per cent and six per cent, every three months thereafter. 

A rate of three per cent is applied for assets declared but are not immediately repatriated. The tax rate will rise to five per cent and then 10 per cent in subsequent three-month periods.

In 2018, information on all financial accounts and related transactions will automatically be exchanged between participating countries, a move aimed to combat tax evasion worldwide. More than 90 jurisdictions around the world have committed to implement the stricter standards. 

Analysts are optimistic the tax amnesty would bring in billions of dollars to Indonesia and strengthen the local currency rupiah. Taxpayers with undeclared assets that do not opt to join the tax amnesty would lose out as information on their transactions would soon be disclosed anyway.