New Indonesian Tax Amnesty Regulation
20 July 2016
By: Narada Kumara (Associate), Sagita Ridjab Syah & Partners
Tax amnesty has become the most highly anticipated program to be implemented by the Government of the Republic of Indonesia since early 2015. Finally, the wait is over, and as of 1 July 2016, the President of the Republic of Indonesia, Mr. Joko Widodo, enacted Law No. 11 of 2016 on Tax Amnesty (“Tax Amnesty Law”). Tax Amnesty Law came into effect on 1 July 2016.
In essence, Tax Amnesty Law provides a time-limited program for certain Indonesian taxpayers to obtain amnesty/forgiveness from the Government in relation to tax liabilities (including penalties and interest) of previous tax periods, by disclosing their assets and paying a so called ‘redemption fee’ (or ‘uang tebusan’ in Indonesian). Further, tax criminal sanction would not be imposed to a taxpayer who participates in the program. Tax amnesty is limited only from 1 July 2016 until 31 March 2017.
In order to provide you with comprehensive information on Indonesian tax amnesty, we set out below the salient features of Tax Amnesty Law.
Article 3 of Tax Amnesty Law provides that all taxpayers, both individual and corporate taxpayers under prevailing Indonesian tax laws, are entitled to participate in tax amnesty, provided that such taxpayers are not:
- under investigation process of tax crime, and whose documents have been declared ‘complete’ (or commonly known as P-21in Indonesian) by a public prosecutor;
- under court proceedings due to tax crime; or
- serving criminal sentence/sanctions due to tax crime.
Disclosure of Assets
In order to participate in tax amnesty, a taxpayer must declare and disclose his assets in a statement letter, whether or not such assets (located within or outside of Indonesia) have been reported in the latest annual tax return. Further, Article 20 of Tax Amnesty Law provides that any data and information contained in the statement letter cannot be used as grounds to initiate any criminal investigation and/or claim against the taxpayers, whether due to tax crime or other criminal sanctions under Indonesian law.
Redemption Fee and Period of Tax Amnesty
Based on Article 4 of Tax Amnesty Law, tax amnesty will be implemented in three phases: (i) 1 July 2016 – 30 September 2016; (ii) 1 October 2016 – 31 December 2016; and (iii) 1 January 2017 – 31 March 2017.
Currently, the prevailing Indonesian tax laws stipulate that applicable tax rates may vary, e.g., a flat rate of 25% of income tax for corporate taxpayers and a progressive tax rate with maximum of 30% of income tax for individual taxpayers. Under Tax Amnesty Law, taxpayers must pay a redemption fee in exchange for tax amnesty. Tax Amnesty Law provides rates which may result in a redemption fee that is lower than the amount of tax that should have been paid upon income that should have been reported. Pursuant to Article 5 paragraph (1) of Tax Amnesty Law, the formula for calculating the redemption fee is as follows:
Redemption Fee = Applicable Rate x Net Value of the Declared Assets
Value of declared assets shall include value of assets as reported in the latest annual tax return as well as additional value of assets which have not been reported in the latest annual tax return. Article 4 of Tax Amnesty Law provides that applicable rates to calculate redemption fee may vary, depending on how quickly a taxpayer declares his assets and whether or not the assets are repatriated to Indonesia, as follows:
Assets located within jurisdiction of Indonesia and retained in Indonesia for a minimum of 3 years
1 Jul 2016 – 30 Sep 2016: 2%
1 Oct 2016 – 31 Dec 2016: 3%
1 Jan 2017 – 31 Mar 2017: 5%
Assets located outside jurisdiction of Indonesia and not repatriated into jurisdiction of Indonesia
1 Jul 2016 – 30 Sep 2016: 4%
1 Oct 2016 – 31 Dec 2016: 6%
1 Jan 2017 – 31 Mar 2017: 10%
Assets located outside jurisdiction of Indonesia and repatriated and invested into jurisdiction of Indonesia for a minimum of 3 years
1 Jul 2016 – 30 Sep 2016: 2%
1 Oct 2016 – 31 Dec 2016: 3%
1 Jan 2017 – 31 Mar 2017: 5%
Additionally, the following rates shall apply to taxpayers, particularly small medium enterprises, whose turnover are not in excess of IDR 4.8 billion in 2015:
- 0.5% : if value of declared assets is not in excess of IDR 10 billion; or
- 2% : if value of declared assets is in excess of IDR 10 billion.
Instrument of Investment
Article 12 of Tax Amnesty Law provides that a taxpayer who chooses to repatriate his assets to Indonesia must put his funds for at least three (3) years in several designated investment instruments, amongst others: i) Indonesian government bonds; ii) corporate bonds issued by state-owned enterprises; iii) financial instrument managed by Indonesian commercial bank; and other instruments allowed by the Government.
Mechanics of Participation
Pursuant to Article 8 paragraph (3) of Tax Amnesty Law, a taxpayer who wishes to participate in tax amnesty must fulfill following prerequisite requirements:
- Possess a Taxpayer Identity Number (NPWP);
- Pay the redemption fee;
- Settle all of tax arrears;
- Settle all outstanding tax obligations;
- Submit latest Annual Tax Return (SPT) of fiscal year 2015; and
- Revoke any claim related to tax cases.
Once completed, the taxpayer must submit a statement letter to Minister of Finance (“MoF”), along with the following attachments: i) receipt of payment of redemption fee; ii) receipt of payment of tax arrears and outstanding; iii) list of assets and debts disclosed along with its supporting information and documents; iv) copy of latest annual tax return; and v) statement letter to revoke any claim related to tax cases.
Further, the taxpayer must submit the statement letter and its attachments to the relevant Tax Office where the taxpayer is registered. Upon receipt of the statement letter, MoF shall issue a letter to grant tax amnesty within 10 working days. If MoF does not issue its letter within 10 working days, then tax amnesty shall be deemed granted by MoF.
Release of Tax Due and its Related Sanctions
In addition to benefit of redemption fee, Article 11 paragraph (5) of Tax Amnesty Law provides that a taxpayer who participates in tax amnesty will also be entitled to enjoy the following benefits:
- Release of tax due in which a tax assessment letter is not yet issued upon such tax due, along with release of administrative and criminal sanctions for tax obligations of fiscal year up to and including 2015;
- Exemption and release of tax audit, preliminary evidence tax audit, and tax crime investigation for tax obligations of fiscal year up to and including 2015; and
- In case taxpayer is under tax audit, preliminary evidence tax audit, and tax crime investigation for tax obligations of fiscal year up to and including 2015, such process shall be discontinued.
Tax Amnesty Law stipulates that tax amnesty shall apply to income tax (Pajak Penghasilan), value added tax (Pajak Pertambahan Nilai), and luxury goods sales tax (Pajak Penjualan atas Barang Mewah).
Pursuant to Article 18 paragraph (3) of Tax Amnesty Law, in case a taxpayer decides not to participate in tax amnesty within the given limited time, or a taxpayer still hides its assets, if later the Directorate General of Tax (“DGT”) finds the assets, which have not been disclosed to them, then the assets will be considered as additional income and shall be subject to a penalty of 200% rate higher than the income tax. It is anticipated that Indonesia will participate in the Automatic Exchange of Information (“AEoI”) program which will commence globally in 2018. Further, the Government also plans to amend its relevant tax and banking laws and regulations in order to support the implementation of AEoI. Therefore, taxpayers will not be able to hide their assets anywhere in the future.
Other issues to be considered by taxpayers before deciding to participate in tax amnesty are, among others, pursuant to Article 14 of Tax Amnesty Law, taxpayers are prohibited from depreciating and/or amortizing the newly declared tangible and/or intangible assets. Articles 16 of Tax Amnesty Law stipulates that taxpayers who participate in tax amnesty shall no longer be entitled to compensate or set-off the remaining tax losses carried forward, as well as to request a tax refund of fiscal year up to and including 2015. Further, taxpayers shall also revoke its ongoing tax dispute claim with DGT, whether tax objection or appeal process.
As with the recent development, despite that Tax Amnesty Law was a newly issued on 1 July 2016, we note that currently there are three (3) applications of judicial review upon Tax Amnesty Law being registered with the Constitutional Court of the Republic of Indonesia. Based on information that we gathered, provisions of Tax Amnesty Law that are under review, amongst others, include the following:
- Article 1 points 1 and 7: definition of tax amnesty and redemption fee;
- Article 3: scope of tax amnesty, subject of tax amnesty;
- Article 4: rate of redemption fee;
- Article 11: exemption of tax crime investigation; and
- Articles 21-23: sanctions for government officials who disclose confidential information provided by taxpayers.
It is anticipated that if the Constitutional Court renders its judgment to amend or annul several clauses according to the judicial review applications, such consequences shall be assessed on a case-by-case basis. Additionally, we also note that as at the date this article is made, MoF regulations that were required for implementation of Tax Amnesty Law have not yet been issued. We will keep you updated on any further developments in connection to the judicial review process or issuance of the required MoF regulations.
Based on the foregoing, we hope that tax amnesty can bring positive impact to Indonesia’s economic situation. It is projected that in the short term, the Government will be able to obtain immediate and a decent amount of revenue generated from the redemption fee paid by taxpayers who participate in tax amnesty. Meanwhile, in the long term, the Government will be able to obtain tax revenue generated from a wide range of economic activities implemented due to repatriation of offshore assets.
Although there are many arguments about the advantages or disadvantages of tax amnesty, we believe that, in principle, Tax Amnesty Law may provide a timely opportunity for certain taxpayers to manage and comply with tax obligations under prevailing Indonesian tax laws. Nonetheless, assessment on a case-by-case basis shall be considered by taxpayers, since interests of each taxpayer may differ from one another.
The Author would like to acknowledge the contribution of Mr. Fikri Mohammad Ilyasa
Narada Kumara, Associate, email@example.com
Narada’s areas of practice are Bankruptcy & Corporate Restructuring; Banking, Finance & Capital Markets; and Tax. In B&A, he has been involved in assisting clients from various business sectors, among others, private equity, banking, IT, telecommunication, mining, and renewable energy. He has also assisted clients in general corporate matters.
He graduated cum laude with a Bachelor of Laws degree in 2013 from the Faculty of Law of University of Padjadjaran, majoring in Economic Law. During his college time, he actively participated in several student organizations, such as the Economic Law Club and the Moot Court Society through which he represented the university in the national moot court competition. He is a member of PERADI and he has been admitted to practice in Indonesian courts.
He speaks Indonesian, English, and basic conversational Chinese.
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