20 July 2016 (Singapore) – Indonesian Tax Amnesty Scheme
Indonesia’s new tax amnesty scheme takes effect from 18 July 2016. The scheme is targeted at recovering billions of dollars that have been lost due to tax evasion by encouraging wealthy individuals and businesses that have hidden their assets abroad to declare their wealth.
THE SCHEME
• It is a 9 month programme that will end March 2017.
• Funds declared for purposes of amnesty will be taxed at rates ranging from 2% to 10%, depending on how soon the individual/business declares the previously untaxed assets and whether the funds declared are repatriated back into Indonesia.
• In order to enjoy the preferential rates in the amnesty, the funds:
i. Must be repatriated and kept in Indonesia for 3 years;
ii. Are to be managed by one of the 18 government approved banks;
iii. Can be invested in instruments like government issued securities, stocks, bonds and mutual funds issued by private companies, as well as the direct purchase of properties.
CHALLENGING THE SCHEME
• The scheme has been challenged by Indonesian legal activist groups such as the Justice Foundation and People’s Struggle Union.
• On 13 July 2016, they submitted a request for the judicial review of on the tax amnesty law, at the Constitutional Court of Indonesia.
• The activist groups view the scheme as an illegal loophole for tax evaders to avoid punishment.
• They have also alleged that the scheme contains at least 21 constitutional violations that could damage Indonesia’s anti-graft efforts.
• A preliminary hearing is to be held 14 days after the required documents have been filed.
POTENTIAL EFFECT OF THE CHALLENGE
• The judicial review has created uncertainty for potential participants.
• If the Constitutional Court confirms the validity of the amnesty tax law, than individuals/businesses would benefit from the declaration and paying of law taxes.
• However, the danger lies in the possibility of the tax amnesty law being declared unconstitutional by the judicial review or be revoked by a future legislation after an individual/business has disclosed his/their assets. In such an event, the individual/business would have declared their previously undisclosed assets without the benefit of any protections and potentially be subject to prosecution.
The Flint & Battery International Law Practice comprises offices in Jakarta, London, Perth and Singapore. For more information, please visit SRSP’s website http://srsp.co.id/ or Flint & Battery’s website https://www.flintbattery.com/.