After a hard year-long discussion, the Indonesian government finally passed Law No. 11 Year 2016 on Tax Amnesty (Pengampunan Pajak) on 28 June 2016.
The Tax Amnesty Program ("TAP") introduced by the new law provides a limited-time opportunity for taxpayers to pay a certain defined amount (Redemption Charge) in exchange for forgiveness of outstanding tax liabilities (including interest and penalties) relating to Income Tax (Pajak Penghasilan), Value Added Tax (Pajak Pertambahan Nilai), and Luxury Goods Sales Tax (Pajak Penjualan atas Barang Mewah), without any fear of criminal prosecution.
All individual and corporate tax-payers are entitled to participate, except:
- parties whose tax crime investigation cases have been declared completed by the public prosecutor;
- parties undergoing court proceedings for a tax crime; and
- parties subject to criminal sanctions due to a tax crime.
The TAP's deadline is 31 March 2017 with three submission periods. Parties who submit during an earlier period pay a lower Redemption Charge ("RC") than those who submit in a later period.
The applicable RC is significantly lower than the tax otherwise due. The full, non-discounted tax rates under Indonesian law are a progressive tax rate with a maximum rate of 30% (for individual tax-payers) and a flat rate of 25% (for corporate tax-payers). In contrast, the TAP tariff is applied on a net asset basis as follows:
|Assets||0 – 3 Months||> 3 – 6 Months||> 6 – 9 Months|
|Declaration of offshore assets without repatriation||4%||6%||10%|
|Onshore assets or repatriated offshore assets||2%||3%||5%|
|Small Taxpayers||Gross Assets up to IDR 10 billion||Gross Assets more than IDR 10 billion|
|With revenue < IDR 4.8 billion||0.5%||2%|
Repatriated offshore assets should be invested within Indonesian territory in several instruments, including but not limited to investment based on prevailing law, and retained in Indonesia for at least three years, while onshore assets cannot be transferred out of Indonesia for at least three years.
In general, the benefits to taxpayers who join the TAP are:
- waiver of outstanding taxes, administrative sanctions, and criminal sanctions accruing on or prior to 2014 or 2015;
- exemption from tax audits, preliminary evidence tax audits, and tax crime investigations for all tax obligations for fiscal years up to and including 2014 or 2015; and
- termination of on-going tax audits, preliminary evidence tax audits, and tax crime investigations for all tax obligations for fiscal years up to and including 2014 or 2015.
Privacy is one of the biggest potential concerns with the TAP as applicants must prepare and submit a declaration letter containing evidence of the assets being disclosed. The process creates doubts over where the information is being held and who has access to it. The declaration requirement continues to influence tax-payers' decisions on whether to participate in the TAP.
High hopes have been placed on the TAP, more so with the recent appointment of Mrs. Sri Mulyani, Managing Director of World Bank, as the Indonesia's Minister of Finance. Mrs Mulyani's appointment aims to improve the implementation of the TAP and as such, investors seem to agree that the TAP will enjoy success.
The enactment of the tax amnesty law in June has given Indonesia some breathing room to boost fiscal spending and prop up growth in the face of weakening revenue. Indonesia's budget deficit reached 1.83% of GDP in H1 2016, compared with the full-year target of 2.35%. It is hoped that the TAP will also eventually result in an increase in domestic liquidity, an improvement of the IDR’s performance, a decrease in the bank rate, as well as an expansion of investment.
BKPM has constructed a new investment scheme for investors who wish to channel their funds to the direct investment scheme. The new direct scheme will include procedures and facilities relevant to taxpayers should they choose to invest their capital in real sectors based on the Government’s priority list and/or other forms of investment which comply with the laws and regulations in Indonesia. BKPM's data shows that investment in Indonesia itself reached IDR 146.5 trillion in Q1 2016, a 17.6% increase from the previous period (IDR 124.6 trillion). That figure comprised Domestic Investment (Penanaman Modal Dalam Negeri) totalling IDR 50.4 trillion (18.6% higher than IDR 42.5 trillion for the same period in 2015) and Foreign Direct Investment (Penanaman Modal Asing) totalling IDR 96.1 trillion (17.1% higher than IDR 82.1 trillion for the same period in 2015).
This is a good decision by the Indonesian government to broaden its taxation base and generate investments for the country. Should you have further queries on the TAP and investment in Indonesia, please contact Daniel Lubis at Daniel.Lubis@twobirds.com.
The above does not constitute legal advice and should not be relied upon as such or be treated as being applicable to any specific fact situation.