17 November, 2016
On 1 July 2016, Indonesian lawmakers enacted the Tax Amnesty Law. Tax amnesty will be effective from 1 July 2016
In principle, all Indonesian tax subjects are eligible to apply for tax amnesty except in the following circumstances where the tax subject is:
- being investigated for any tax related offences and such investigations have been declared by the Indonesian State Attorney as complete or are pending the court process; or
- involved in a tax-related criminal sanction process.
Through the Tax Amnesty Law, the Indonesian tax authorities are offering Indonesian taxpayers to voluntarily declareany previously undeclared assets which they own and to pay a one-off tax penalty at a concessionary redemption rate. The Tax Amnesty Law also gives an opportunity to the tax payer to submit revisions against his first declaration. The tax payer is given up to three opportunities to make such revisions during the tax amnesty period. Such revisions will have to be confined to (i) declaring additional or a reduction of assets that have not been declared in previous declarations, (ii) alterations to the Redemption Rates calculations due to a cancellation of the tax payer’s intention to (a) repatriate and invest the assets into Indonesia; or (b) retain the onshore assets.
If any Indonesian taxpayer elects not to declare such assets and the tax authorities subsequently discover them, criminal sanctions as well as more onerous tax rates may be imposed on them.
The Tax Amnesty Law is the Indonesian government’s attempt to address several issues including a fiscal deficit, existing tax gaps and increasing tax revenue through the repatriation of assets currently kept outside Indonesia. The aim is to help the country accelerate economic growth, restructure its economy and fund much needed infrastructure development in the country.
In addition to concessionary redemption rates for individual taxpayers who voluntarily declare their previously undeclared assets, the Tax Amnesty Law also provides for concessionary redemption rates for Indonesian businesses which voluntarily declare their previously undeclared assets. However, these concessionary redemption rates are only applicable to small and medium sized Indonesian companies (i.e. companies with annual revenue of 4.8 billion rupiah and below as at 31 December 2015).
The voluntarily disclosed information will not be used or admitted as evidence in any criminal prosecutions and cannot form the basis of any tax investigations made against the declarant taxpayer for periods up to the end of the latest fiscal year.
The voluntarily disclosed information will be used solely for the purpose of calculating the one-off tax penalty. It will not be shared with others and there will be no further enquiry by any party under any laws in Indonesia, unless directed so by the disclosing taxpayer. All governmental agencies involved in the implementation of the tax amnesty are also prohibited to disclose, disseminate, and/ or forward any data and information related to and declared by the tax subject.
For ongoing tax crime investigations of Indonesian taxpayers, by voluntarily disclosing information about his/her undeclared assets, it will translate into a discontinuation of investigations being conducted on that individual.
The efficacy of the Tax Amnesty Law is yet to be tested and its take-up rate remains to be seen. From the perspective of the Indonesian tax authorities, it may be that achieving their objectives through the Tax Amnesty Law would be much easier than the Automatic Exchange of Information (“AEOI”) process, given that the taxpayers would in this case come forward, volunteer the information, pay the relevant (discounted) dues and in some cases also repatriate
assets back to Indonesia.
For the AEOI process (when it is implemented), the Indonesian tax authorities will need to rely on the information provided to them by a foreign tax authority and will thereafter have to locate the errant taxpayers in order to prosecute them to recover any unpaid taxes.
Given that there will be a gap of some 17 months between the lapsing of the Tax Amnesty Law to the first exchange of information under the AEOI commitment made by Indonesia, there is a possibility that the Indonesian government may extend the end date of the Tax Amnesty Law. In the meantime, it is likely that the Indonesian government will continue to put in place all that is required to get it ready to meet its commitments for the purposes of implementing AEOI in 2018.
This would send a clear signal to the Indonesian taxpayers that the Tax Amnesty Law may be their last chance at regularizing any legacy accounts before AEOI kicks in.
For further information, please contact:
Al Hakim Hanafiah, Partner, Hanafiah Ponggawa & Partners
ahhanafiah@hplaw.co.id
