Time is up for Indonesian tax evaders

13th April 2017

When Indonesia’s tax amnesty – which began in July 2016 – ended on March 31st more than 800,000 evaders declared 4,700trn rupiah ($350bn) in assets previously hidden from the authorities. This figure is equivalent to 40% of Indonesia’s GDP and 90% of the money supply – revealing the truly epic scale of tax-dodging in the South-East Asian nation.

Given that only 30 million people out of a labour force of 118 million are on the tax register, and only 10 million file a tax return regularly, it is somewhat unsurprising that Indonesia’s Finance Minister, Sri Mulyani Indrawati, has resorted to a less conventional, and highly controversial, method of fighting tax evasion.

A generous offer

‘Taxpayers’ who declared their funds in the first three months were charged 5%, those who declared in the second three months were charged 6% and those who waited until the final three months were charged 10%. However if these funds were also repatriated by the first, second or third cut off points, the taxpayer was only charged 2%, 3% or 5% respectively. Anyone who failed to own up to stashing cash abroad in havens such as Singapore, Panama, London, Hong Kong and the British Virgin Islands will now face tough penalties.

Highly controversial

Many people have criticised the ban for rewarding evaders for historic tax evasion and others suggest that it could potentially undermine honest taxpayers’ confidence in the whole Indonesian tax system. However, it was also successful in a number of respects. In fact it was one of the world’s most successful amnesties in terms of revenue raised. The money will help replenish government reserves to fund much-needed infrastructure development and social programs, and therefore stands to benefit society as a whole.

Closing in

It’s becoming increasingly difficult for firms around the world to get away with any transgressive behaviour and Indonesia’s adoption of the Common Reporting Standard, along with new harsher penalties, will mean there is nowhere for tax evaders to hide. For firms that are dedicated to operating compliantly there are also numerous opportunities for them to trip themselves up and land themselves – or even their end clients – in seriously hot water.

If you’re at all unsure about your status, or that of the contractors you’re placing in foreign locations, then ensure you partner with a specialist before it’s too late. With the law changing at a rapid rate in countries around the world, you could be putting yourself at a greater risk than you were aware.

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