A new tax amnesty Bill, designed to give Indonesia's economy and tax coffers a much-needed multi- billion-dollar boost, was finally passed by lawmakers yesterday.
Initially aimed at encouraging wealthy citizens with assets hidden abroad to come clean with the taxman, the final version of the legislation will also offer discounted tax rates for small businesses that declare their wealth.
"With this tax amnesty Bill, we hope to attract overseas capital of Indonesians," said Finance Minister Bambang Brodjonegoro after the Bill was ratified yesterday.
He told the House that the repatriated funds, which will be channelled into investments such as government bonds, mutual funds and real estate investment trusts, among others, would help drive the country's economic growth.
Under the new Bill, which could take effect as early as next month, tax rates will range from 2 per cent to 10 per cent, depending on how quickly an individual declares his assets and whether the capital is repatriated to Indonesia.
Tax Amnesty Bill (2016)
Under the new Tax Amnesty Bill, which takes effect next month, the faster Indonesians act, the less they will pay.
2 per cent: For assets declared and repatriated to Indonesia within the first three months after the law is passed.
3 per cent: For assets declared and repatriated after the third month and until Dec 31, 2016.
5 per cent: For assets declared and repatriated between Jan 1, 2017, and March 31, 2017. 4 per cent: For assets declared but not repatriated to Indonesia within the first three months after the law is passed.
6 per cent: For assets declared but not repatriated after the third month and until Dec 31, 2016.
10 per cent: For assets declared but not repatriated between Jan 1, 2017, and March 31, 2017.
FOR SMALL BUSINESSES*
0.5 per cent: For declared wealth of less than 10 billion rupiah (S$1 million).
2 per cent: For declared wealth of more than 10 billion rupiah.
* Companies with annual revenue of up to 4.8 billion rupiah.
This is higher than the 1 per cent to 6 per cent proposed in a draft Bill bandied about earlier this year.
For instance, those 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 goes up to 3 per cent after three months, and to 5 per cent after six months or until the end of next March when the amnesty ends.
For assets declared but not repatriated, a rate of 4 per cent is applied. That will rise 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$494,000) will be taxed at 0.5 per cent if their declared wealth is below 10 billion rupiah. It will be 2 per cent for those with declared wealth of above 10 billion rupiah.
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 - although Mr Bambang plans to cut corporate tax by 5 percentage points this year.
Indonesia has a 250 million- strong population, but only 27 million are registered taxpayers. Of this number, just a million file their tax returns regularly each year.
Some US$200 billion (S$271 billion) in Indonesian wealth is thought to be stashed in Singapore, according to private bankers and wealth managers.
The government now hopes such funds will return to Indonesia as it seeks to raise some 165 trillion rupiah, which would increase its revenue by 11 percentage points.
Lawmakers have been arguing over the details of the Bill for months, with some criticising it as a "Get out of jail free card" for tax evaders. But it was passed yesterday with the support of all but one of the 10 political parties present during the plenary session.
Reactions from market watchers were mixed, with most saying it was still too early to tell if Indonesia would benefit in the long term.
But OCBC Bank economist Wellian Wiranto said the new Bill signals the seriousness the Joko Widodo presidency has put into economic reforms since late last year.
"Like the dozen or so packages that the Cabinet has rolled out, the market knows it is on the right track but remains somewhat reserved about the impact until they see the measures being fully implemented," he said. "In this case, the take-up rate of the tax amnesty would thus take on broader importance."