1 Aug 2016
INDONESIA IN-DEPTH: Uptake and Consequences of the Repatriated Funds Tax Amnesty
Initial signs suggest that Indonesia’s nine-month tax amnesty is proving a success. Introduced on 1 July this year, the initiative was designed to encourage the repatriation of undeclared overseas assets and provide a much-needed boost for government revenues.
To maximise the uptake of the amnesty, repatriated funds are subject to a tax of between two and 10%, far lower than Indonesia standard tax rate of 25%. The Indonesia government has also established offices in Singapore, Hong Kong and the UK to help companies or individuals looking to take advantage of the amnesty.
To qualify for the preferential taxation rates, returned funds can only amount to a maximum of Rupiah 560 trillion (US$41.8 billion) or less. Consent must also be given for them to be held in one of 18 officially-designated Indonesian banks for a period of at least three years. The funds, however, may also be used for the purchase of government bonds, securities, mutual funds or real estate.
Since the announcement of the amnesty, Indonesia’s stock market has registered 10 trillion Rupiah (US$763.65 million) in new investment, resulting in a rise of 5%.
Overall, the government is hopeful that the amnesty will net some 53 trillion Rupiah (US $4 billion) in lost revenue. If the target is met, it is hoped that corporate income tax levels will be reduced, providing a boon to companies looking to establish or further invest in production facilities in the country. On the downside, the sudden increase in capital inflows has placed pressure on Indonesia’s central bank to maintain the Rupiah’s parity with other international currencies.
Over the coming months, it has been estimated that some 15-20% of investors will bring assets home as a result of the amnesty. There are, however, increasing signs that a number of the regional tax havens are considering counter-measures. Singapore, for instance, is said to have begun offering very low interest rates on loans to Indonesian investors.
For its own part, after the amnesty period comes to an end, Indonesia is looking to establish an Offshore Financial Centre (OFC), an officially-sanctioned domestic tax haven intended to reduce the future outflow of funds.