In July this year, the Indonesian govern ment implemented an audacious tax amnesty programme to boost its its tax revenues and bring back billions of dollars stashed away in other countries. One of the biggest beneficiaries is believed to be tax havens like Singapore, with around $900 billion of Indonesian money estimated to be have been squirreled away in such places. The tax amnesty has been a tremendous success so far, and one of the reasons behind this has been the incredibly low penalty. In addition, industry experts believe the amnesty programme will have a far-reaching impact on Indonesia’s economy.

RIGHT TIME?

Law firms like Ivan Almaida Baely & Firmansyah (IAB&F) believe the bill will impact the acceleration of Indonesia’s economic growth, reformation of its tax systems and increase in its tax revenue.

“A lot of funds parked offshore will come back to Indonesia, and this is good for the country’s economy,” says IAB&F partner Ivan F. Baely. “We believe that the bill was introduced at the right time since a lot of businessmen wish to legally bring their funds back to Indonesia without being subject to potential sanctions. And these businesses have direct legal ownership to their assets instead of using nominee arrangements, which Indonesian law does not expressly recognise.”

The money repatriated into Indonesia has to be kept in the country for at least three years and invested based on a stipulated list of permissible investments. This list includes gold, real estate, infrastructure projects, government securities, marketable securities, banking products, private company bonds and real estate investment trusts.

MARKET REACTION

The tax amnesty programme was introduced in July and will continue till March 2017. It has been divided into three stages. The redemption payment rates for declared assets or funds repatriated into Indonesia are 2 percent for declarations done before the end of September 2016; 3 percent before the end of December 2016; and 5 percent at the end of March 2017. The redemption payment rates for declared assets and funds which continue to be maintained overseas are 4 percent, 6 percent and 10 percent, respectively.

Since the introduction of the bill, the Indonesian market has responded positively, says Zippora Siregar, founder of Indonesia-based law firm Siregar & Djojonegoro. As of October, taxes worth $7.45 billion were paid by Indonesian citizens, reaching up to 60 percent of the $12.6 billion (165 trillion rupiah) target.

Some $293 billion of assets were also declared. “The stock market index and the price of Indonesian government bonds have been increasing as a result,” says Siregar.

LEGAL WORK

According to Baely, there will be more investments in the country as a result of funds coming back to Indonesia. “The clients are very happy with the tax amnesty,” he says. “They will use this opportunity to bring back the funds into Indonesia and conduct their businesses in a proper way, in accordance with the prevailing laws and regulations.”

Indonesia is also ready to implement the Automatic Exchange of Information (AEOI) framework with tax haven countries by 2018, a move that will allow its tax office to have greater access to its citizens’ financial records in countries like Singapore, Mauritius or the British Virgin Islands (BVI). “Clients are enthusiastic to join the tax amnesty programme. This will be the last chance for tax dodgers to report or disclose all of their offshore assets or they will have to face the full force of the government’s tax regime chasing after their assets,” says Siregar.

Ever since the bill’s implementation, clients of law firms have been keen to understand what the programme is all about. “A lot of our clients are seeking our advice and asking us to assist them in this matter. We see increasing enquiries from the clients related to the tax amnesty,” says Baely.

Lawyers observe that clients are approaching them for guidance in terms of procedures to obtain tax amnesty, advice on legal impact of the tax amnesty on their companies, and the corresponding assistance dealing with the bill.

Siregar notes that clients are also seeking advice on the interpretation of certain provisions under the tax amnesty law. Clients are also increasingly seeking explanations relating to the confidentiality of the taxpayers’ information, acceptable evidence to support the existence of assets, and taxpayers’ legal protection under the programme.

BETTER THAN SUNSET

In the past, similar programmes have been implemented in other countries like Australia, Germany, India, Italy and Russia.

The idea of a tax amnesty bill is not new even in Indonesia, as it had been introduced before. In 2008 and 2015, the country rolled out the so-called Sunset Policy, but it did not yield the desired results.

Legal professionals, however, are quite optimistic about Indonesia’s recent amnesty reforms. “We believe that this bill will be successful and possibly more successful than the Sunset Policy,” says Baely. “The amnesty bill does not demand payment of any taxes but only a penalty that must be paid, and the penalty is very low compared with the tax that actually must be paid.” – Raj Gunashekar

SINGAPORE BANKS REPORT TAX AMNESTY INDONESIANS TO POLICE

Private banks in Singapore are sharing with local police the names of clients embracing an Indonesian tax amnesty, three banking sources tell Reuters, a move that could undermine the amnesty and damage the banks’ business with their biggest client pool.

Singapore’s Commercial Affairs Department (CAD), a police unit that deals with financial crime, told banks last year they must file a suspicious transaction report (STR) whenever a client took part in a tax amnesty scheme, the sources say.

After initial resistance from the banks, worried they might lose clients, that message was reinforced this year by the Monetary Authority of Singapore (MAS), the country’s central bank, when Indonesia launched a tax amnesty aimed at wooing back some of the cash its wealthy citizens have stashed in Singapore, the sources said. “We are filing the STR and hope others are doing it, too,” says one senior private banker when asked about clients responding to the Indonesian amnesty.

“Banks have filed STRs,” says another banking source, adding that clients should not be informed about the filing.

After the Reuters story was published, the MAS confirmed in a statement that it has advised banks in Singapore to encourage their clients to use tax amnesty programs to regularize their tax affairs.

“Banks are required to adhere to the Financial Action Task Force (FATF) standard of filing a suspicious transaction report (STR) when handling tax amnesty cases, similar to the practice in other jurisdictions,” it said last month.

The FATF is a global body that conducts regular evaluations of countries’ anti-money laundering standards. The MAS said that participation in a tax amnesty program, in and of itself, would not attract criminal investigation in Singapore.

“The expectation for an STR to be filed on account of a client participating in a tax amnesty program should therefore not discourage clients from participation.”

Singapore, where Indonesians hold an estimated $200 billion in private banking assets – 40 percent of the island’s total private banking assets – made tax evasion a money-laundering offence in 2013. It is toughening up the implementation of the law after an investigation into state-backed fund 1MDB in neighboring Malaysia.

The STR requirement on suspected tax crimes is part of that process. “In light of the toughening regulatory environment, banks need to conduct more proactive checks on the effectiveness of their internal controls and procedures,” says Wilson Ang, a partner in the Singapore office of Norton Rose Fulbright. – Saeed Azhar and Anshuman Daga of Reuters