BETTER SAFE THAN SORRY - INDONESIAN TAX REPORTING
By James Kallman and Tonizar Lumbanbatu
It is wise to seek professional assistance in helping to navigate what are likely to be choppy waters ahead.
The introduction of the OECD-sponsored Common Reporting Standard (CRS), due diligence for which began from January 1, 2016, for early adopters, has certainly caused waves in the financial community. Although Indonesia will not join in until the second wave a year later, the wise are already reviewing their current tax reporting strategy to ensure compliance, a move prompted by the tax authorities, as they become more aggressive of late, together with talk of the government introducing a tax amnesty during the coming year. It is thus prudent to review current Indonesian tax regulations and reflect on what a tax amnesty means.
Taxation in Indonesia is based on residency and as well as Indonesian citizens and business entities, foreign nationals who have been resident for more than 183 days within a 12-month period, together with businesses having a permanent entity status. All are liable for payment of Indonesian taxes. Moreover, taxation is based on the taxpayer’s global income, although credit will be given for taxes paid overseas, subject to limits and double taxation treaties already in place.
In order that the accuracy of the global income filing can be assessed, disclosure of worldwide assets has been mandatory for a number of years when filing Indonesian tax returns, with severe penalties applied for non-compliance. However, any law is only as good as its enforcement and the Indonesian authorities are well aware that vast sums abroad are not reported in tax returns; figures of over $200 billion in Singapore alone have been reported. To encourage the return of a substantial portion of this currently unreported wealth, the government has proposed a fourth tax amnesty since independence.
While President Joko Widowo aimed to unveil the terms before the filing date of the 2015 tax year, political squabbles suggest that it will now not take place until the next session in April. Preliminary reports suggest an initial 1% compensation tariff on sums repatriated during the amnesty’s first three months, rising to 2% in the second three months, and 3% for the final period. Rates would be double for funds merely reported but not repatriated. Nevertheless, reports also suggest that no questions will be asked about the fund source.
Of course, until the actual details of the plan are released even its likely success in attracting the repatriation of countless trillions of rupiah is a matter of conjecture. However, those who defer in the hopes of some future amnesty are playing with fire, as implementation of the CRS will provide the tax authorities with a vast amount of knowledge about the overseas holdings of all taxpayers.
Therefore, it is wise to seek professional assistance in helping to navigate what are likely to be choppy waters ahead. While the proposed amnesty is primarily targeted at Indonesian taxpayers with substantial funds abroad, legally it will equally apply to resident expatriates who to date may also have not declared all their worldwide assets. After all, better safe than sorry.
**This article was published in the Forbes Indonesia, April 2016. You can also read this article on Forbes Indonesia.