Jakarta plans tax haven on two islands near Singapore

Bintan, Rempang earmarked to draw funds that may otherwise be kept outside Indonesia, says senior minister

Rempang, which is linked to Batam by a road bridge, and Bintan are an hour's ferry ride from Singapore.
Rempang, which is linked to Batam by a road bridge, and Bintan are an hour's ferry ride from Singapore. ST FILE PHOTO

JAKARTA • Indonesia has earmarked two islands near Singapore as its own tax havens to prevent taxpayers from keeping their assets offshore - in Singapore, for example - a senior Cabinet minister has said.

The two islands being looked at are Bintan and Rempang, Coordinating Maritime Minister Luhut Panjaitan said on Friday, as reported by jakartaglobe.com news site.

Both islands are located next to Batam and are about an hour's ferry ride away from Singapore.

"This is actually a good idea for Indonesia, particularly with the tax amnesty programme already under way," Mr Luhut said.

Rempang is linked to Batam by a road bridge. Bintan, like Batam, is popular with Singapore holidaymakers.

If the plan comes to fruition, Indonesian and foreign businesses can set up shell companies there to keep their offshore investments, with low taxes to lure them, Mr Luhut said.

Having Indonesia tax havens will be useful for the country's ongoing tax amnesty scheme, with billions of dollars expected by officials to be repatriated home. But there is some concern that these funds may leave the country again when the obligatory three years of keeping the monies onshore expired, he was quoted as saying.

Indonesia introduced the tax amnesty last month, hoping to see the repatriation of some 1,000 trillion rupiah (S$103.5 billion).

Under the 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.

President Joko Widodo aims to use the monies repatriated to pay for an ambitious infrastructure agenda and boost economic growth.

Malaysia has a tax haven on Labuan island, off Sabah, offering corporate tax rates as low as 3 per cent and attracting both foreign and local businessmen to set up shell companies, jakartaglobe.com said.

Labuan was set up as an international offshore financial and banking centre 26 years ago.

The Indonesia government does not have a deadline to set up the proposed tax havens, Mr Luhut said.

The government will need to revise the existing tax code, prepare the necessary infrastructure and eliminate red tape to ease business activities in the area, the news site quoted him as saying.

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A version of this article appeared in the print edition of The Sunday Times on August 14, 2016, with the headline Jakarta plans tax haven on two islands near Singapore. Subscribe