Tax Amnesty Program of Indonesia Reviewed by Constitutional Court
Indonesian Finance Minister Sri Mulyani Indrawati was at a court hearing in Jakarta on Tuesday (20/09) to defend the legality of the nation’s tax amnesty program. In July 2016 legal activists, gathered within the One Justice Foundation (Yayasan Satu Keadilan) and Indonesian People’s Struggle Union (Serikat Perjuangan Rakyat Indonesia), filed for a judicial review at the Constitutional Court claiming that the program turns money laundering into a legal practice, protects criminals, teaches Indonesian citizens not to pay taxes, and constitutes an unfair program from a social point of view.
The nine-month tax amnesty program of Indonesia was launched in mid-July 2016 and is scheduled to run until 31 March 2017, offering tax evaders attractive tax rates to declare their previously undeclared onshore or offshore assets and – if desired – repatriate the offshore funds into the specific onshore investment instruments that have been prepared by the Indonesian government as well as the country’s financial authorities.
At the court hearing on Tuesday (20/09) Finance Minister Sri Mulyani stated that the government is able to collect valuable funds through the amnesty program that are used for economic development of Southeast Asia’s largest economy and therefore benefits Indonesian society as a whole. Meanwhile, she emphasized that the program does not pardon tax evaders. Those who have been evading taxes will have to pay a penalty.
Furthermore, the tax amnesty program aims to broaden Indonesia’s taxpayer database. Currently, there are only 27.6 million registered taxpayers in Indonesia, while the nation’s workforce numbers 115 million. Therefore, Indonesia’s tax-to-GDP ratio is currently very low as well at around 12 percent.
The next hearing at Indonesia’s Constitutional Court is scheduled to take place next week. The court is expected to need at least one month to draw a conclusion whether the government’s tax amnesty program is constitutional. It is unclear, however, what the consequences would be if the court decides that the program is unconstitutional. This causes some uncertainty about the program that will make tax evaders hesitant to participate in the program. On the other hand, if the court decides that the program is legal, then it could give another boost to the program as legal uncertainty wanes.
After a slow start, Indonesia’s tax amnesty program is starting to accelerate significantly. Per 20 September 2016, IDR 1,131 trillion (approx. USD $86.3 billion) worth of assets have been declared. The majority of these assets are onshore assets (IDR 775 trillion), while the remainder (IDR 298 trillion) are offshore assets. A total of IDR 58.6 trillion (approx. USD $4.5 billion) has been repatriated into Indonesia. The government targets to see IDR 4,000 trillion in asset declarations and IDR 1,000 trillion in asset repatriations.