Controversies Haunt Jokowi’s Tax Amnesty Program

The Indonesian government is going all-out to promote a tax amnesty program amid jitters from Singaporean bankers, who are estimated to hold tens of millions in assets spirited overseas, and by reformers, who say the amnesty gives fugitives too good a deal.

The program is aimed at rich Indonesians who have undeclared assets overseas, with President "Jokowi" Widodo leading the campaign in several cities to try and convince prominent businesspeople to take part.

Jokowi held several “meet and greet” with entrepreneurs in Central and West Java to discuss the government’s flagship program to repatriate Indonesian assets parked overseas and increase tax revenues.

The program is designed to catch big tax evaders who have massive assets overseas but who have never declared them in Indonesia. According to the law, taxpayers who are the object of the tax amnesty program are individuals or corporations that have taxation rights and obligations in accordance with existing taxation regulations.

Under the amnesty scheme, the government seeks to bring about the return of an astonishing Rp1 quadrillion (US$76 billion) worth of Indonesian-owned assets held overseas and to recoup at least Rp165 trillion in penalty payments that it plans to use to plug the holes this year’s state budget deficit.

Businesspeople who repatriate their assets will enjoy a redemption rate ranging from 2 to 5 percent of the assets, while those who declare their assets will get a 4 to 10 percent rate.

"I am optimistic with this program. I do not talk numbers, but most importantly public trust in the government is shown. I also saw their compliance and awareness to pay the taxes. This is a very good movement," Jokowi told economists and businesspeople who attended a lunch meeting at the State Palace recently.

The Indonesia’s House of Representatives agreed to pass the tax amnesty bill into law during a plenary session bathed in interruptions from lawmakers back in June. In total, nine party factions agreed to the formation of the Tax Amnesty Law.

The Jokowi government hopes the first period of the program, which began on July 1 and runs until the end of September, can attract a large number of participants. Its second period is scheduled from Oct. 1 to the end of December.

Several conglomerate and prominent business owners in Indonesia are joining the program. Names such as Murdaya Poo, Hutomo Mandala Putra—better known as Tommy, son of the late president Suharto – former Indonesian Employers Association (Apindo) chairman Sofjan Wanandi, property magnate James Riady, Triputra Group founder TP Rachmat, as well as media mogul Erick Thohir.

“I have been waiting for the amnesty for years. The tax amnesty will ease the burden of my children who will inherit my fortune and people who work for our firms,” Murdaya Poo told journalists after filing his tax amnesty.

He then called on fellow businesspeople to follow suit, assuring them tax officials were helpful. Poo also said that he would repatriate all of his offshore assets and declare them.

The Finance Ministry's Directorate General of Taxation said 1,929 new taxpayers have registered since Jan. 1 to participate in the amnesty program, contributing Rp 6.86 trillion (US$522 million) of declared assets and Rp123.24 billion in redemption.

As of Sept. 5, Rp 223.89 trillion in assets have been declared with redemptions at Rp 4.78 trillion. Of declared assets, Rp175.21 trillion came from domestic declarations while Rp 35.60 trillion came from overseas. Meanwhile, repatriated assets were recorded at Rp 13.08 trillion

Challenges from inside and out

However, there is some resistance. Civil advocate groups One Justice Foundation and People's Struggle Union officially filed requests for a judicial review to the constitutional court on July 13.

Sugeng Teguh Santoso, the chairman of the non-governmental organization One Justice Foundation, said the president must be warned that the article allows individuals suspected of conducting illicit transactions, including drug dealing,to escape the law.

On the last hearing held by the court this week, Finance Minister Sri Mulyani Indrawati, a former World Bank managing director, spent nearly an hour emphasizing that Indonesia is a sovereign country built on the sweat, blood and tears of its people, and describing how it required sufficient and continued resources to maintain its independence and sovereignty.

The government denied the petitioners’ assertion that the law discriminated against and harmed them, insisting that it was applicable to all citizens and that it was part of a comprehensive effort to build a trusted relationship between the government and its people.

Sri Mulyani claimed that the program offers three benefits, including the use of repatriated funds to develop the economy. Before her appearance at the constitutional court, she persuaded the leaders of Muhammadiyah, the second-largest Muslim organization in the country, to drop its plan to file its own judicial review petition to the court after they met in a two-and-a-half hour closed-door meeting last week.

Challenges also come from Singapore, which according to Sri Mulyani holds an estimated of US$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.

Media reports say that private banks in Singapore are sharing with local police the names of clients embracing Indonesia’s tax amnesty. 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 takes part in a tax amnesty scheme.

After initial resistance from the Singapore banks, who are jittery that they might lose clients, that message was reinforced this year by the Monetary Authority of Singapore (MAS), the country’s central bank.

Responding to the report, Sri Mulyani said she had spoken with Singaporean authorities, including Singapore Deputy Prime Minister Tharman Shanmugaratnam to get an official explanation.

She added that Singaporean banks are required to comply with the Financial Action Task Force regulation that demands them to file a report whenever they suspect suspicious financial activities.

However, she said the MAS had insisted that Indonesians’ participation in tax amnesty could not be considered an action that would trigger a criminal investigation.

“I reaffirm once again that we will continue to cooperate with the Singaporean government to lessen the possibilities that will prevent Indonesians from joining the tax amnesty.” She told a televised press conference recently.

Tax expert says that 24 of 38 countries had fully implemented the tax amnesty program while the remaining 14 countries, including Indonesia, were currently working on the implementation of the program.

The 13 other countries are Argentina, Fiji, Gibraltar, Honduras, Pakistan, South Korea, Trinidad & Tobago and Thailand, as well as Brazil, India, Israel, Malaysia and Russia. The last five countries are currently conducting an offshore voluntary disclosure program (OVDP), which is only focused on asset disclosures, without repatriation.