Warning against tax evasion: Indonesia to adopt aeoi next year
Indonesia will be among the first to join the group of countries adopting the Automatic Exchange of Information (AEOI) in 2018.
AEOI would provide automatic exchange of tax information among the members of the group. All bank accounts in the world would be accessible for taxable assets.
Dishonest and greedy tax payers, therefore, would have no easy way to escape tax investigators.
Indonesians who were used to parking money abroad and gained from tax evasion might have to spend long sleepless nights if they continue to go their way .
No one could stash away assets in foreign bank to avoid paying tax, an official said.
Finance Minister Sri Mulyani Indrawati when seeking to socialize the tax amnesty program at the Kemayoran JIExpo, Jakarta earlier this week warned tax payers not to try to hide assets.
“Soon with AEOI no more place safe enough for tax evasion. In the past delinquent tax payers might be able to safely hide their assets abroad as we were powerless beyond our border,” the minister said.
The country has limited ability and determination to follow the complicated procedure and Indonesia has no enough bargaining power in demanding information about the assets of its citizens abroad.
Now, however, there is a tendency among finance ministers of all countries to rely more on tax for income that they agreed on a new standard of exchange of information through AEOI on the initiative of the Organization of Economic Cooperation and Development (OECD).
Sri Mulyani, who just left a highly paid position as Managing Director of the World Bank to become a finance minister of this cash strapped country, said countries grouped in the G-20 and OECD agreed that with AEOI business people have no more way to evade payment of tax.
The minister just warned people with unreported income to be careful with AEOI as countries having information are legally bound to declare information they have needed by other countries.
“Rather than being caught with tax evasion charge later it is better to take part in the tax amnesty program when the redemption tariff is still low,” she said.
She said tax amnesty is an instrument to bring home funds owned by Indonesians from abroad and to cancel unpaid tax of the past and criminal and tax administrative sanctions.
The funds are potential to be used to finance productive investments in the country, she added.
“If you already have the NPWP (tax registration number) and SPT (annual tax report), and have given information of assets , redemption could be calculated only 2 percent – much lower than the normal tax tariff,” she said.
The law has set the tariffs for asset transfer or repatriation at 2 percent each in the first three month period as from July 2016. The tariff is set higher at three percent in the three month period and five percent in third three months period.
The tariff for asset abroad not repatriated or declared is four percent in the firth three month period , six percent in the second three month period and 10 percent in the third three months period.
Data from the OECD by 14 April in 2016 showed 94 jurisdictions were committed to automatic exchange of information for taxation interest.
Among the 94 jurisdictions, 55 are committed to automatic exchanged of information in 2017 including tax haven countries such as Bermuda, British Virgin Island, Cayman Island and Luxemburg. The rest including Singapore, Japan and Indonesia would follow in 2018.
The idea of automatic exchange of information for taxation purpose surfaced in 2010 when the U.S. government issued a policy on Foreign Account Tax Compliance Act (FATCA).
FATCA required foreign financial institutions to submit report to the U.S. government all information about financial accounts or other entities owned by the Americans.
In 2013, finance ministers and central bank governors of the member countries of G20 and OECD supported plan for automatic exchange of data as a standard for global information exchange for taxation purposes.
Later on in 2014, G20 and OECD member countries gave an okay to policy formulations such as FATCA through the publication of Common Reporting Standard (CRS) as the basis for global information exchange.
The Indonesian government, according to the Head of the Bureau of Communications and Information Service of the Finance Ministry NE Fatimah, will sign the FATCA and would start conducting information exchanges by phases with the U.S. Government in September 2016, as preparatory step ahead of the adoption of AEOI with 94 jurisdictions in September 2018.
In implementing FATCA and AEOI, the Finance Ministry is ready to give support in the form of transparency in banking information for the information exchange and data related to taxation.
This is important to maintain the position of Indonesia from being branded as non-cooperative jurisdiction , which would have damaging impact for the countrys financial and industrial sectors.
Taxation observer Darussalam said the tax amnesty program is potential to trigger an uproar as with the taxation data information exchange , data on tax payers abroad would be brought out to the open.
As a result, tax institution would be flooded with information about banking data and the exchange of data would widely unveil the wealth of tax payers, he said.
Therefore, tax amnesty could not be fully effective without comprehensive tax reform, especially when there has not been revision of regulation on banking secrecy about clients, he said.
He said Indonesia still maintain the bank secrecy regulation.
“If the tax amnesty program is to be successful, support in the form of openness of banking data is needed not only internationally but also domestically,” he said.
Darussalam, who is a lecturer at the University of Indonesia, said anywhere in the world , tax amnesty goes all along with tax reform .
“This is often forgotten as if tax amnesty could ago lone,” he said.
Chairman of the Tax Accountant of the Indonesian Accountant Association (IAI) John Hutagaol said ideally there is revision of the Banking Law to back up the tax amnesty program for transparency in data of clients in order to find tax payers not yet paying tax properly.
The then Finance Minister Bambang PS Brodjonegoro said he would give special intervention by demanding firm sanction if the state or jurisdiction refused to comply with the agreement.
“Therefore, we ask G-20 and make sure all jurisdictions , state or no state to seriously address this . The sanction is like blacklist and sanction in the form of money flow, declaration of financial system, etc,” Bambang said.
Indonesia seems set to implement AEOI and cooperative in adopting the new standard of information exchange for taxation purpose.
Therefore, tax payers who have failed to report their assets unpunished, should seriously consider advises to take part in the tax amnesty program otherwise they may have to spend sleepless long nights for the rest of their life.
The opportunity is open openly until March 31, 2017.(*)