This post is written by Frisca Setyorini following GoLive Discussion Series, 23 September 2016 in Adelaide. The Tax Amnesty Program socialisation will also be held in Sydney on Friday, 21 October 2016 at the Consulate General of the Republic of Indonesia, Sydney and Saturday, 22 October 2016 at the Consulate General of the Republic of Indonesia, Melbourne. More information can be found here and here.
Indonesian parliament approved Tax Amnesty Law in July 1st, 2016. The Tax Amnesty is considered as a substantial strategic policy for Indonesian Government. With slumping commodity prices such as metal and mining, Indonesia is facing challenges as a commodity exporter. Therefore, Indonesia needs to find other economic resources and create employment. State Budget is the fiscal instrument function to alleviate poverty, to decrease social gap, and to create a job opportunity. However, these aspects cannot be achieved if the economy is in a stagnant condition. In that sense, the government must create a strategy to boost the economy.
By definition, Tax Amnesty Program is the elimination of tax otherwise due with no administrative and criminal sanctions concerning taxation, by declaring assets and paying redemption money (www.pajak.go.id, 2016). It is the taxpayers right to do so. The Tax Amnesty is seen as a strategy that is not only important to boost tax revenue and to enhance taxation database but also expected to attract Indonesian citizens participation to finance infrastructure development by collecting funds from assets repatriation. Furthermore, it also focused on building public trust. If Indonesian citizens put their confidence in Indonesia, investment is expected to grow. Consequently, Indonesia will be able to fund the development independently.
The President of the Republic of Indonesia is very enthusiastic about the Tax Amnesty program and have also dedicated himself into Tax Amnesty socialization. He personally conducted a tax amnesty socialization program for more than 12.000 participants in several cities in Indonesia such as Jakarta, Surabaya, Medan, and Bandung. The President aims to build up better Indonesian economy as well as maintain good governance system that is transparent and accountable. Positive perception towards investment can only be achieved when society is confident in its government. Then, hopefully, this positive contribution is followed with an increase in tax compliance.
The million dollar question people often asked is “Why does The Government endorse tax Amnesty Program now?”
There are many answers to that question, but the Indonesian Government underlines three main reasons. Firstly, Indonesia needs large funds for infrastructure development. The President of the Republic of Indonesia has several ambitions, and one of them is to build 35.000 MW of powerhouse. Currently, investment in new hotels is obstructed because of unstable electricity in all provinces. His goal is to provide all Indonesian areas equal access to electricity. By having access to electricity, economic activity can be created in all aspects. Hence, the economy in Indonesia will improve.
Secondly, Indonesia has signed the agreement on Automatic Exchange of Information System (AEOI). As of 26 July 2016, Indonesia has committed to 101 jurisdictions. By doing so, through exchanging information as well as adopting “The Base Erosion and Profit Shifting (BEPS)”, Indonesia is said to achieve even further extensive actions towards tax transparency development compared to other OECD countries.
Thirdly, low tax compliance leads to sub-optimal public participation in state development. In 2015, Indonesia only has 30.044.103 taxpayers registered. It is a subtle number considering the number of working citizen is up to 93,72 million people. From this figure, only 18.159.840 taxpayers are obliged to submit an annual tax return. However, the annual tax return for year 2015 sums up to only around 60,24% (www.pajak.go.id, 2016). From the data above, it is can be concluded that tax compliance in Indonesia is still very low.
Currently, Indonesia is using self-assessment taxation system where the DGT has the authority to test tax payer’s compliance by conducting a tax audit. The enactment of Tax Amnesty Law gives out a positive signal for taxpayers who have not fulfilled their tax obligation properly. This should be seen as an opportunity to get one of the benefits of not being audited for previous period tax obligation should they choose to take part. Tax Amnesty Program works as a bridge to connect taxpayer’s past economic transactions with its current economic condition due to mismatch and disregarding proper tax obligation.
Two options are made available for taxpayers who have submitted an annual tax return on time but have not disclosed all assets and liabilities completely: (a) to join Tax Amnesty Program or (b) amend the annual tax return. To increase tax compliance and improve taxation data basis, taxpayers should then fulfill their tax obligation better and submit annual tax return correctly, completely, and clearly.
Indonesian citizens can still join the program until the end of March 2017. Channel News Asia Economists reported that the momentum of people declaring assets in the first phase exceeded expectations, but this momentum is expected to continue at a slower pace after the first period. During the first stage of the program, starting from 1 July to 30 September 2016, undeclared assets are redeemed at the lowest rates of two per cent for declaration assets in Indonesia and/or repatriation assets and four per cent for declaration assets offshore (Channel News Asia, 2016).
In the next period of the program, the socialisation targets for Small Medium Enterprises (SMEs). SMEs with the business turnover of up to IDR 4,8 Billion get two special rates which are 0,5 percent(for the declaration of asset worth up to IDR 10 Billion) or 2 per cent (for the disclosure of asset worth more than IDR 10 Billion). This rate shall have effect until 31 March 2017.
Every day, DGT receives a lot of request of socializations from society. To support the program, the media, as well as government institution organizes their own socialization by inviting speakers from DGT. After socialization, most of them said that they want to participate in the tax amnesty program to get one of the benefits which are a stoppage of tax audit, preliminary evidence, or tax investigation process. For example, after the socialization at The Indonesian National Police (Polri) was held, The Chief of Polri gave instruction to all Police forces to join tax amnesty program. Surprisingly, many police officers do not know how to fill out their annual tax return. For decades, most of them have someone else to submit their annual tax returns. Sometimes, they do not disclose all assets they have in their tax return. Hence, this is the great opportunity for police officers to join tax amnesty program said the Chief of Polri.
Despite low asset repatriations with only 4% of total assets being declared, Indonesia’s tax amnesty programme in 2016/2017 is deemed more successful compared to similar programs which done in Italy (2009), Chile (2015), Spain (2012), South Africa (2003), Australia (2014) and Ireland (1993) (www.indonesia-investments.com, 2016). All levels of tax officer in Directorate General of Taxation, as well as all related parties such as Attorney General, Police, PPATK, and banking institutions, fully supports the Tax Amnesty Programme. In fact, on 30 September 2016, some banks opened their service until 21.00 Western Indonesian Time for customers, particularly those who deposited redemption money. Minister of Finance sends gratitude to Director General of Taxation, and all tax officials for their service to taxpayers who apply for tax amnesty. During this period, to fully support this program, all tax offices in Indonesia have committed to provide their services every day (Monday-Sunday).
The tax amnesty program participation increases especially after prominent figures are reported to have joined the program. It is recorded until the end of September 2016, over 400,000 taxpayers participate in tax amnesty program. It is around 2,2% from the number tax returns that had been lodged in 2015. Tax amnesty program also increases the number of 2015 tax returns because one of the requirements to join tax amnesty is have to submit 2015 tax returns.
During the Tax Amnesty Program presentation in Adelaide on 23 September 2016, many Indonesians residing in Adelaide were interested and took part in the discussion. Some of them said that they want to help Indonesia by investing in the country as the nation is calling. They said that this is a smart choice as they only need to pay 2% for redemption money instead of amending all the annual tax returns for undisclosed assets. Several prominent taxpayers in Indonesia said that joining tax amnesty program is a smart choice.
In the first period, total assets declared are IDR 3.626 trillion. As at 30 September 2016, total redemption money collected is around IDR 97,2 trillion or 58,97% from its target IDR 165 trillion. The response from the society was very positive even though in every socialization most of the questions are always about whether they have to join tax amnesty program or not? Lack of understanding lead to confusion but eventually all that hesitation had been justified by DGT (Directorate General of Taxation) through new regulation explaining for whom this tax amnesty program is subjected.
On October 17th, 2016, Director General of Taxes visited one of the biggest trading market, Tanah Abang to discuss and explain about tax amnesty program to merchants. These merchants are the taxpayer who is paying taxes using particular rate determined by their total income per month and this will be the final tax. It has been regulated in Government Regulation Number 46 year 2013; the rate is only 1% exposed to gross income per month.
People are hoping that after tax amnesty program is finalised, better tax administration services, as well as the tax law enforcement, would prevail. It has been anticipated by the DGT by signing several agreements with some law institutions. In the future, DGT will enforce the tax law for all taxpayers. All information regarding Tax Amnesty is also available in website www.pajak.go.id/amnestipajak and hotline service in 1500745.
Frisca Setyorini is currently working as a staff at the Directorate of Dissemination, Service and Public Relations, Directorate General of Taxation.
GoLive Indonesia deeply thank Frisca Setyorini for her time and contribution towards our Discussion Series and also the Australian-Indonesian Association of South Australia for the support given.