No tax cut or policy change in response to Indonesia's tax amnesty: Singapore

A general view shows under-construction buildings among the city skyline in Jakarta on June 30.
A general view shows under-construction buildings among the city skyline in Jakarta on June 30. PHOTO: AFP

JAKARTA - Singapore has not cut its tax rates, nor changed any of its policies in response to Indonesia's tax amnesty, according to an official from the Republic's embassy in Jakarta.

"Recent claims that Singapore is implementing policies to 'thwart' Indonesia's tax amnesty programme are untrue," said the embassy in a statement on Saturday (July 23).

It was responding to local media reports insinuating that Singapore was attempting to block the return of funds from its banks to Indonesia using underhand tactics.

The embassy's statement was reinforced by a joint release sent to The Straits Times by Singapore's Ministry of Finance and Monetary Authority of Singapore on Saturday afternoon.

The accusation stems from a belief in certain quarters of Jakarta's elite that Singapore is concerned that it may lose billions of dollars in Indonesian wealth stashed away in its banks, because of the amnesty.

One of the first salvoes was fired by House speaker Ade Komarudin, who in a Bisnis Indonesia news report on Tuesday, urged Singapore not to sabotage his country's new tax amnesty scheme.

His comments came after rumours emerged in recent weeks that some banks in Singapore had allegedly offered special incentives to Indonesian clients in a bid 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.

Center for Indonesia Taxation Analysis chief Yustinus Prastowo, however, told Jakarta Globe news in a report on Friday that Indonesian businessmen have told him of such approaches by "private agents" of Singapore banks.

Mr Yustinus did not name the banks or the businessmen but such canards quickly became fodder for Indonesia's tabloids and politicians alike against their neighbour.

Finance Minister Bambang Brodjonegoro said in the same Bisnes Indonesia report that he was not afraid of the alleged move by Singapore, which he referred to as "just a small country".

Vice-President Jusuf Kalla said Singapore's purported worries over the loss of funds due to the amnesty "proves what people always say that most of the money stashed in Singapore comes from Indonesia", reported Jakarta Globe.

The Singapore Embassy, however, said Singapore has no interest in sheltering illicit tax monies.

"We subscribe to the internationally agreed standards, including for money laundering and for exchange of information," said the Singapore Embassy in its statement.

"If there is any such case of suspected cross-border tax evasion, the Government concerned can approach Singapore - we have assisted and will continue to assist in line with the international standard."

In a Facebook post on Saturday, Home Affairs and Law Minister K. Shanmugam said despite the good relations Singapore enjoys with Indonesia in the last 50 years which benefits both countries, he did not understand why there was a constant attempt to put Singapore down; and taunting Singapore that it is small.

"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," he said.

The Tax Amnesty Bill, ratified by Parliament on June 28, is aimed at bringing back billions of dollars to Indonesia. These are purportedly funds it lost over decades to widespread tax evasion and in assets hidden overseas by wealthy citizens.

Taxes will range from 2 per cent to 10 per cent, depending on how soon individuals declare previously untaxed assets and whether the funds are repatriated.

The rates are well below current personal income tax rates in Indonesia, which range from 5 per cent to as high as 30 per cent - although only 27 million of Indonesia's 250 million population are registered taxpayers, with around a million people who actually file tax reports.

Private bankers estimate that about US$200 billion (S$271 billion) in Indonesian wealth and assets are managed by financial institutions in Singapore.

The Indonesian government expects 1,000 trillion rupiah (S$102.7 billion) to be repatriated and invested locally. Tariffs under the amnesty will also add 165 trillion rupiah to its tax coffers.

Indonesia's Finance Ministry on Monday appointed 18 banks to handle tax payments and manage repatriated assets under the amnesty.

Among them are the Indonesia units of DBS Bank and United Overseas Bank - two of Singapore's three local banks.

Allegations against Singapore for trying to derail Indonesia's plan by cutting personal income taxes did not appear to hold water, said industry observers.

For starters, the personal income tax rates for the top 5 per cent of income earners in Singapore - which many wealthy Indonesians will fit into if they are liable for taxes there - have been raised only recently.

The marginal tax rate for the highest income earners - those who make more than S$320,000 - will be increased by 2 percentage points to 22 per cent for income earned this year and taxes payable in 2017.

Indonesia's tax amnesty, which officially started taking applications on Monday, ends next March.

In response to Mr Bambang's comments, Singapore Home Affairs and Law Minister K. Shanmugam said he did not understand why there was "this constant attempt to put us down; and taunting us that we are small". 

"We are good friends with Indonesia in the last 50 years. We have cooperated on many matters," said Mr Shanmugam in a Facebook post on Saturday. "Both countries benefit from this good relations. But every now and then, someone in Indonesia will tell us that we should know our place, a little red dot.

"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."