Indonesia’s Tax Amnesty
    Category: Column By : Rainer Michael Preis Read : 2096 Date : Thursday, October 13, 2016 - 13:32:54

    While Einstein may have a point, Indonesia’s tax amnesty program conversely seems a fair and clear proposition to understand. Under this program, tax-avoiding individuals and companies would pay between just 2% and 10% in penalties, or around a third of what they should be, if they repatriate or declare assets within a set timeframe.

    Those who own up immediately pay as low as 2% tax, a rate far lower than for those who’ve been paying law-abidingly all along, but which will rise as the amnesty period gets close to expiring. Those who don’t declare will need to pay 200% of the tax owed if they’re found out.

    While the OECD opined that Indonesia’s tax amnesty is too generous and may even hamper compliance in an economy already ranked as one worst for collection, tax amnesty needs to be understood in the wider context of President Joko (Jokowi) Widodo’s “Jokowinomics.”

    Cynics might point out that taxation is just a sophisticated way of demanding money with menaces. Indonesia has a small tax base: of 255 million people, just 10.9 million taxpayers, including companies and individuals, submitted returns last year, according to the tax office. It is important to note that Indonesian money accelerated flowing into Singapore’s private banks and other offshore centers after attacks against ethnic Chinese businesses and the fall of the Suharto regime in 1998 led to political instability and lack of confidence in the country. Thus, the proposed tax amnesty is not just about the taxes. Along with an abysmal tax compliance rate, Indonesia only ranks 107th out of 175 on Transparency International’s global corruption index (the higher the number, the more corrupt).

    Indonesia’s graft-busting Finance Minister Sri Mulyani Indrawati, who was arguably driven into exile six years ago after targeting corruption, is now back and is trying to improve things by implementing tax amnesty. From 2008 until 2010, she tried to go after big, politically well connected Indonesian companies evading their tax obligations but she lacked the political support. The highest-level political backing is critical to force a break with the past where Indonesia’s parliament has few checks and balances. A past where there was little accountability or transparency, and a few powerful families controlled the economy, meant Indonesia was underperforming. Now Sri Mulyani has the needed political backing from the top and a clear reform agenda.

    By 2018, Indonesia, Singapore and others are due to adopt OECD common reporting standards (CSR) to share information about their citizens holding assets abroad. Reforms now focus on reducing domestic tax evasion; and reform of the tax office itself is in order to have clear checks and balances.

    Globally, governments are looking to reduce tax evasion, especially after the release of the Panama Papers revealed government officials, businessmen and other prominent individuals worldwide using offshore tax shelters. Tax amnesty supported by Big Data and technological advancements will encourage more transparent tax identification and collection systems, more transparent government and a better future for all Indonesians.