Skip to main content

Advertisement

Advertisement

Indonesia’s tax amnesty unlikely to see return of funds parked overseas

SINGAPORE — Despite Indonesian government expectations, the country’s recently-passed tax amnesty is unlikely to prompt the return of the bulk of funds parked overseas, said analysts yesterday.

The tax amnesty, which takes effect next month, partly aims to address the fact that Indonesia, 

a country of more than 250 million people, has only about 30 million registered taxpayers. Photo: Reuters

The tax amnesty, which takes effect next month, partly aims to address the fact that Indonesia,

a country of more than 250 million people, has only about 30 million registered taxpayers. Photo: Reuters

SINGAPORE — Despite Indonesian government expectations, the country’s recently-passed tax amnesty is unlikely to prompt the return of the bulk of funds parked overseas, said analysts yesterday.

“For businesses, they don’t want to attract attention by bringing back too much funds. By declaring, they will attract scrutiny from tax authorities and there is that fear,” said CIMB economist Song Seng Wun.

The amnesty plan would not provide a structural lift to revenue collection in the longer term if policymakers do not follow through on the information yielded on tax payers/tax evaders to increase tax compliance, according to a Morgan Stanley note.

Indonesia’s Parliament on Tuesday passed a tax amnesty law aimed at drawing billions of dollars from wealthy Indonesians abroad and from tax evaders at home to help finance infrastructure and boost economic growth.

The law, which takes effect next month, grants special rates of 2 per cent to 10 per cent to tax evaders who declare their past earnings, compared with normal personal income tax rates of 5 to 30 per cent.

People and companies that declare their earnings and pay the special taxes will not be penalised for having failed to declare them before. Indonesia, a country of more than 250 million people, has only about 30 million registered taxpayers.

The country’s Finance Minister Bambang Brodjonegoro said the amnesty is expected to draw about 165 trillion rupiah (S$16.9 billion) for the government, while some reports had suggested that as much as US$200 billion (S$269.6 billion) was deposited in Singapore.

“While on the surface the tax amnesty Bill may affect the wealth management industry in Singapore, drill deeper and you may find that it is not so easy to lure wealthy Indonesians to shift their funds back to Indonesia. Singapore banks offer a number of advantages for the well-heeled, including client confidentiality and favourable interest rates. In addition, the political stability and solid economic factors, coupled with Singapore’s reputation as the region’s financial hub, makes the island-state attractive to the High Net Worth Individuals,” said IG market strategist Bernard Aw.

Indonesia has also threatened those it suspected of evading tax with action, claiming that under the Automatic Exchange of Information (AEOI) pact signed by more than 50 countries, Jakarta will be able to get information on undeclared funds parked in low-tax countries. The reality, however, is that any data exchange by countries must first meet stringent criteria, including a robust legal framework to maintain information confidentiality.

And Indonesia will not be able to enforce its laws in a foreign country. “Just like Singapore can’t enforce its anti-haze regulations in Indonesia, Indonesia won’t be able to enforce its tax regulations on Singapore soil,” said CIMB’s Mr Song. “It will be interesting to see how much will flow back … probably not as much as the Indonesians hope.” Mr Song added that the AEOI pact is targeted at money-laundering and the amount of disclosure will be counterbalanced by the need to not jeopardise domestic policies.

Mr Aw added that how the Indonesian government moves ahead with reforms to improve tax compliance and collections will be essential. For the time being, the private banking sector in Singapore may be wise to adopt a wait-and-watch approach, he said. With Agencies

Read more of the latest in

Advertisement

Advertisement

Stay in the know. Anytime. Anywhere.

Subscribe to get daily news updates, insights and must reads delivered straight to your inbox.

By clicking subscribe, I agree for my personal data to be used to send me TODAY newsletters, promotional offers and for research and analysis.