Indonesia’s tax amnesty programme, which runs until the end of next March, has been declared a success, based on the first two-and-a-bit months in operation, various news websites and other organisations are reporting.
In spite of a slow start more than US$263bn has already been declared and more than 347,000 have signed up to receive substantial tax discounts, according to figures released at the end of September.
The amnesty opened on 18 July and will run until the end of March 2017. It is exceptional in that it eliminates the taxpayer’s principal tax debt, all administrative sanctions and tax crime sanctions if the taxpayer makes a ‘redemption payment’. Law firm Withers explains that the rates for the redemption payment are between 2-10%: the lowest rate of 2%, which applied for declarations made before the end of September 2016, has now expired and going forward the rates applicable are: 3% for declarations made before end of December 2016; and 5% for those made before end of March 2017.
The redemption payment for amnesty users who do not repatriate their funds has now risen from 4-6%. This rate will be held until December this year, after which it will rise to the final level of 10%.
Lower redemption payment rates of 2-5% are available to those who repatriate their offshore assets to Indonesia provided that the applicant commits to retaining such assets within the country for at least the next three years, says Withers.
Despite the incentives, initial take-up was slow at first. By 22 August, only US$3.4bn of assets had been declared, of which US$437m was from overseas. This was welcomed by the Singapore financial industry, which is estimated to be holding some US$200bn of undeclared Indonesian funds.
In fact, law firm Herbert Smith Freehills suggested that Singapore’s financial regulator was partly responsible for the slow start, by requiring Singapore financial institutions to file a suspicious transaction report and even freeze an Indonesian customer’s account as soon as the customer indicated they were considering participating in Indonesia’s current tax amnesty.
However, the number of applications increased sharply as the 30 September deadline approached. According to tax officials, queues of applicants began to form outside tax offices during the night. It is also said that some of Indonesia’s wealthiest individuals have signed up.
Most of the US$263bn of offshore funds declared so far are in Singapore, followed by the Cayman Islands, Hong Kong, China and the British Virgin Islands, according to Indonesia’s finance ministry.
Sources: Reuters, Jakarta Globe, Skala News (Indonesia), Pinsent Masons, Herbert Smith Freeholds, Withers (summary of amnesty terms).