The Indonesian Government recently issued the long-awaited and anticipated Tax Amnesty Law (Law No. 11 of 2016). Discussion of a possible tax amnesty began in 1998, as part of a larger projected overhaul of the tax system in Indonesia. However, the discussions faltered and the Government, instead of a tax amnesty, implemented a tax “sunset policy” in 2008 through the third amendment of Law No. 6 of 1983 regarding General Taxation Provisions and Procedures (the “General Taxation Provisions Law”).
The effort to stimulate the Indonesian economy by increasing tax revenue did not stop in 2008, with a second sunset policy introduced in 2015 through the issuance of Minister of Finance of Regulation No. 91/PMK.03/2015 regarding Reduction or Elimination of Administrative Sanction for the Late Submission of Tax Return, Revision of Tax Return, and Late Payment or Remittance of Tax.
Neither the 2008 or 2015 sunset policy “forgave” the principal tax debt; they simply provided a reduction and/or elimination of administrative sanctions for the late submission or revision of annual income tax returns. Unlike the sunset policy, the tax amnesty under the Tax Amnesty Law eliminates the principal tax debt and administrative sanctions, as well as providing no-examination of tax crimes.
What the Tax Amnesty Is
Article 1 point 1 of the Tax Amnesty Law defines Tax Amnesty as the elimination of payable taxes, which shall not be subject to any administrative sanction or criminal sanction, by disclosing the Assets and paying Redemption Money as regulated under this Law (emphasis added).
Tax amnesty can be provided to taxpayers only if the taxpayers (i) disclose their Assets, and (ii) pay Redemption Money. The Tax Amnesty Law broadly defines Assets as “an accumulation of added economic capability in the form of all assets, tangible and intangible, movable and immovable, used for conducting business and used not for conducting business, both located within and/or outside of the territory of the Republic of Indonesia.” Redemption Money is defined as an amount of money paid to the state treasury to obtain Tax Amnesty.
The Tax Amnesty forgives or waives tax debts, administrative sanctions, criminal sanctions and tax examinations, but taxpayers must pay a certain amount of money (i.e., Redemption Money) to obtain the Tax Amnesty from the Government. Redemption Money is not considered income tax although it will be recorded as revenue derived from income tax in the state budget.
What the Tax Amnesty Law Provides
The Tax Amnesty Law provides for the (i) elimination of tax debt; (ii) the elimination of tax administrative sanctions in the form of interest or fines; and (iii) no-tax examination, no examination (verification) of initial evidence, and no investigation of tax crimes for the tax years up to 2015.
Who Can Benefit from Tax Amnesty
Facilities or benefits provided under the Tax Amnesty Law are available to taxpayers that disclose their Assets and pay Redemption Money. “Taxpayers” under the Tax Amnesty Law refers to both individual and corporate taxpayers. The following, however, cannot receive a Tax Amnesty: (i) taxpayers being investigated for tax crimes whose investigation files have been declared complete by the public prosecutor's office; (ii) taxpayers in judicial proceedings for tax crimes; or (iii) taxpayers serving a criminal sentence for tax crimes.
Coverage of the Tax Amnesty Law
The Tax Amnesty provided under the Tax Amnesty Law is applicable for tax obligations related to income tax, value added tax and sales tax on luxury goods up to the latest tax year (i.e., the 2015 tax year).
Redemption Money and Rates
To receive a Tax Amnesty, taxpayers must pay Redemption Money, which is calculated by multiplying the applicable tax rate by the net value of Assets not disclosed in the last annual income tax return (i.e., the 2015 tax return). Details on the applicable tax rates for the calculation of Redemption Money in the Tax Amnesty Law are as follows:
- For onshore Assets and repatriated offshore Assets:
- 2% for the first month up to the third month as of the enactment of the Tax Amnesty Law;
- 3% for the fourth month up to December 31, 2016;
- 5% for January – March 31, 2017.
- For non-repatriated offshore Assets:
- 4% for the first month up to the third month as of the enactment of the Tax Amnesty Law;
- 6% for the fourth month up to December 31, 2016;
- 10% for January – March 31, 2017.
- For small business enterprises (having annual turnover up to IDR 4.8 billion):
- 0.5% for Taxpayers declaring Assets with a value of up to IDR 10 billion;
- 2% for Taxpayers declaring Assets with a value of more than IDR 10 billion.
Procedure to Obtain Tax Amnesty
- Taxpayer obtains information from the Directorate General of Taxation (“DGT”) on completing the Tax Amnesty application form and the supporting documents that must be attached;
- Based on the information from the DGT, the taxpayer shall pay the Redemption Money to the appointed Receiving Bank;
- Taxpayer submits a Declaration Letter and the required supporting documents to the Minister of Finance through the DGT;
- Taxpayer must fulfill the following requirements: (a) have a Tax Identification Number (“NPWP”); (b) pay the Redemption Money; (c) settle all Tax Arrears; (d) settle underpaid tax or payable tax or settle the tax restitution that shall not be returned to taxpayer; (e) submit the Latest Annual Income Tax Return; (f) cancel the application for tax restitution, reduction or elimination of administrative sanctions, reduction or cancellation of incorrect tax assessment, objection, revision of tax assessment and decision letter, appeal, claim, and judicial review (reconsideration);
- Minister of Finance must issue a Statement Letter on Tax Amnesty at the latest 10 working days as of the submission of the Declaration Letter by the taxpayer. In the event the Minister fails to issue a Statement Letter on Tax Amnesty within the prescribed period, the Declaration Letter shall be deemed a Statement Letter on Tax Amnesty;
- Taxpayers can submit three Declaration Letters before March 31, 2017.
Tax Amnesty Consequences
There are a number of significant requirements for taxpayers that receive a Tax Amnesty. These include the requirement that taxpayers transfer Assets to Indonesia under the Tax Amnesty and make an investment using these Assets, which must be maintained for at least three years, and that taxpayers declaring Assets in Indonesia must not transfer those Assets outside of Indonesia for at least three years.
Other consequences for obtaining a Statement Letter on Tax Amnesty:
- Taxpayers will not be required to pay the payable tax for the tax years up to 2015 which assessment has not been issued and will not be subject to administrative sanctions for any unpaid or underpayment of payable taxes in such years;
- Will receive elimination of taxation administrative sanctions in the form of interest and fines;
- Will not be subject to examination, examination (verification) of initial evidence, or prosecution for tax crimes;
- Must submit a realization report on the transfer of Assets to Indonesia and realization of the placement of their Assets in Indonesia;
- Must register land and/or building titles as well as shares that have not been registered in their name;
- Taxpayers are not allowed to compensate their fiscal loss, compensate tax overpayment in their tax return, submit an application for tax restitution or revise their tax returns for the tax years up to 2015.
There are two types of sanctions under the Tax Amnesty Law:
- Sanctions imposed on taxpayers who do not participate in the Tax Amnesty program: The DGT will impose the normal income tax rate on Assets that have not been disclosed and a fine in the amount of 200% of the payable tax if the DGT within three years as of the enactment of the Tax Amnesty Law finds that there are Assets obtained by the taxpayer within the period of January 1, 1985 to December 31, 2015 that have not been disclosed.
- Sanction imposed on those who disclose taxpayer data related to the Tax Amnesty program: Any party that discloses taxpayer data related to the Tax Amnesty faces a maximum prison sentence of five years. Prosecutions related to the violation of taxpayer data secrecy by the Minister of Finance, Deputy Finance Minister, officials of the Ministry of Finance and other parties shall be based on the claim of the relevant taxpayer whose data privacy has been violated.
In addition to the foregoing, the Minister of Finance has issued two regulations related to the Tax Amnesty Law. Those are (i) Minister of Finance Regulation No. 118/PMK.03/2016 dated July 15, 2016 regarding Implementation of Law No. 11 of 2016 regarding Tax Amnesty, and (ii) Minister of Finance Regulation No. 119/PMK.08/2016 dated July 18, 2016 regarding Procedures for Transferring Taxpayer Assets to the Territory of Republic of Indonesia and the Placement of Investment Instruments in the Financial Market.