Tax amnesty: Will Indonesians bite?

Observers say it is too early to predict take-up but impact on Singapore will be limited

A one-time blanket pardon and discounts for tax evaders who come clean about their assets, as well as a looming global pact on the exchange of information on taxation.

These are the right ingredients for Indonesia's tax amnesty to succeed, observers told The Straits Times this week, after the Bill was passed on Tuesday.

The experts also say that while it is too early to tell how many errant taxpayers will eventually take up the offer of amnesty, most expect the move to have limited impact on Singapore, where significant Indonesian wealth is held. "Predicting the eventual take-up rate is not easy," said OCBC Bank economist Wellian Wiranto. "One has to take a stab at first estimating how much undeclared wealth there is out there to begin with."

Still, expectations remain high that billions of dollars' worth of funds lost in evaded taxes and assets of rich Indonesians hidden overseas could return home.

The Bill, passed almost unanimously in Indonesia's Parliament after months of deliberation, should kick off this month once President Joko Widodo signs it.

Once the scheme takes effect, taxes will range from 2 to 10 per cent, depending on how soon individuals declare previously untaxed assets and whether the funds are repatriated to Indonesia.

The Indonesian government hopes assets worth 4 quadrillion rupiah (S$409 billion) will be declared and that about a quarter of this will be repatriated. A quadrillion is 1,000 trillion.

According to estimates from the Global Financial Integrity database, there were more than US$180 billion (S$242 billion) of undocumented outflows from Indonesia between 2004 and 2013, while US$200 billion in Indonesian wealth is thought to be stashed in Singapore, said private bankers and wealth managers. The return of these funds, believed to be currently banked in Singapore, Switzerland and Hong Kong, will add 165 trillion rupiah to Indonesia's tax coffers and increase revenue by 11 percentage points.

Finance Minister Bambang Brodjonegoro said repatriated funds must be channelled into Indonesia-based investments for at least three years.

Mr Wellian believes one of the reasons the scheme will succeed, particularly in regard to offshore assets, is that "the carrots dangled by the amnesty could soon contrast with the sticks presented by a global timeline for authorities to share information about bank accounts across borders by 2018".

He was referring to a standard of automatic exchange of information on tax matters developed by the Organisation for Economic Cooperation and Development.

Indonesia, Singapore, Switzerland and Hong Kong are among 94 territories and countries committed to start exchanging information to combat tax evasion by 2018.

A feature of the amnesty is that taxpayers can opt not to repatriate their wealth, so long as they file a declaration of the assets they own.

Clients of Bordier & Cie are being advised to take advantage of the amnesty, said Mr Evrard Bordier, who heads the Swiss private bank's Singapore unit. "Transparency is the zeitgeist of our time - this inevitably paves the way for authorities to detect undeclared assets sooner or later," he said.

The amnesty is unlikely to impact Singapore adversely, even if it does lead to some repatriation of assets to Indonesia, he said.

"But I don't foresee this to be a huge amount," he said. "Clients book their assets offshore not merely due to tax purposes, but also because of the instability of their respective home countries."

Baker Tilly TFW tax partner Loh Eng Kiat agreed that an exodus of funds out of Singapore is unlikely, due to "the confidence that wealthy Indonesians have in Singapore's sound economic fundamentals and pro-business values".

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A version of this article appeared in the print edition of The Straits Times on July 01, 2016, with the headline Tax amnesty: Will Indonesians bite?. Subscribe