Indonesia’s Tax Amnesty Policy Hinges on SMEs

You can buy the latest smartphone through Indonesia’s consumer-to-consumer e-marketplace Bukalapak. You can even invest your money by purchasing gold on the site. But did you know that you can also apply for tax amnesty with the help of Bukalapak?

In July, the e-commerce company was recruited by the Indonesia Stock Exchange to hold a campaign and help lure small- and medium-sized enterprises (SMEs) into participating in the nation’s tax amnesty programme. Co-founder and CEO Muhamad Fajrin Rasyid said the online marketplace helped attract SMEs through its chat group and forum features.

“For now, we are just helping spread the information, both online and offline. For online, we have a forum, while for offline, we often hold gatherings for our members outside Jakarta,” Rasyid told Indonesia Expat.

Rasyid believes that educating his users on how to participate in the tax amnesty programme is necessary, considering that the e-commerce site is home to more than one million SMEs and individual merchants, many of whom make their living mostly through C2C marketplace sites like Bukalapak and Tokopedia. Stakeholders feel the strategy has potential, seeing as how only 68,500 SMEs participated in the first round of the programme, which began on July 1 and ran until the end of September.

“We see this as something that might benefit our members. Big business owners have already applied [for the tax amnesty programme]. We can’t let small business owners not capitalize on this opportunity,” explained Rasyid.

Bukalapak’s campaign is part of the government’s initiative to tap into the massive tax potential of the archipelago’s SMEs, as participation from this segment so far as been low.

The tax amnesty programme is President Joko Widodo’s flagship effort to solve the country’s tax revenue problems, which have continuously experienced shortfalls in recent years. The government aims to do so by repatriating funds from overseas into the local real estate and financial markets.

The programme is divided into three phases. The first phase ran from July to September, and the second phase will last until December 31. The last phase will run from January 1 until March 31, 2017.

The first phase proved to be a success, collecting Rp.97.2 trillion (US$7.49 billion) in revenue, or 58.9 percent of an initial Rp.165 trillion (US$12.7 billion) target it has set to achieve by the end of March 2017.

Yet, SMEs only accounted for less than 20 percent of the total number of asset declaration statements, and less than 5 percent of the total amount of penalty or redemption payments during the first phase.

This low involvement from SMEs is expected to change in the second and third phases, as stated recently by Finance Minister Sri Mulyani Indrawati. She said, “We will continue familiarizing them with it and hope they will dominate the programme.”

An SME is defined as an individual or a business entity with an annual turnover of Rp 4.8 billion (US$370,000) or lower. The penalty rates – for both declaration and repatriation – are set at 0.5 percent for SMEs with total assets of Rp.10 billion (US$770,000) and 2 percent for those with total assets above that level.

Unlike non-SME participants that see rates climb higher after entering the second and third phases of the amnesty programme, the rates for SMEs remain flat throughout all three periods.

With flat rates, the government hopes that SMEs, which make up a significant portion of the country’s economy (there are more than 50 million SMEs in the country), will be enticed to join the tax amnesty programme. In the aggregate, they account for around 60 percent of the country’s economy and 99 percent of its workforce.

Yustinus Prastowo is the executive director at the Center for Indonesia Taxation Analysis. “The potential is huge because our informal economy makes up 60 percent of our GDP. There are also millions of SMEs, and thus they are important to broaden the basis of our taxpayers,” said Prastowo in an interview with Indonesia Expat.

Despite the huge potential, Prastowo said that the challenges in attracting local SMEs are many, and indeed complex.

“SMEs have been reluctant in paying taxes because they feel they have never gotten help from the government, so why should they pay taxes?” he explained, adding that Indonesia is infamous for its bureaucratic red tape which likely discourages SMEs from bothering with taxes at all.

“There are also administrative challenges. SMEs are not familiar with filling out forms and so on. So they need assistance. If possible, the tax office should register them through data from banks or the database in the Cooperatives and Small and Medium Enterprises Ministry,” said Prastowo.

Echoing Prastowo, Rasyid said that most of the SMEs on Bukalapak do not know how to participate in the programme, as they most often hail from outside Jakarta. “The interest is there, but many of us are still confused on where to go and how to register,” he said, adding that some are also reluctant to register because the process must be done offline. “If we can register online, then it would be easier,” Rasyid suggests.

Prastowo also urges the tax office to let SMEs register for the amnesty programme online. “It’ll be easier for SMEs, especially those in the e-commerce sector,” he said. “They are already literate in IT, so don’t force them to do it offline.”

The Indonesian Employers Association (Apindo) chairwoman for SMEs Nina Tursinah said business people need assistance on several fronts, including the paperwork.

“If there’s no one assisting them, some mistakes may occur as shown in several cases in which they paid higher redemption payments,” she recently told The Jakarta Post.

The higher rates were charged because the SMEs were not aware of special rates available to them. Apindo recommended that the tax office holds events for the special purpose of distributing information to SMEs, using simple and easy-to-understand language, so that the government can inch closer to its target.

Responding to the suggestions, the Finance Ministry’s directorate general of taxation said that taxpayers who have not participated in the programme will be approached and invited to join.

“We want to chase SMEs and taxpayers who did not participate in the first round of tax amnesty, including prominent taxpayers,” said the tax office’s director general Ken Dwijugeasteadi.

Dwijugeasteadi added that his office would coordinate with the Cooperatives and Small and Medium Enterprises Ministry to encourage SMEs to participate.

Prastowo said that it was important for the tax office to work together with other government agencies like the Cooperatives and Small and Medium Enterprises Ministry, which manages SMEs in the country.

“This is a moment to create a synergy among government institutions because SMEs do not fall under the Finance Ministry or the tax office, but they are under the Cooperatives and Small and Medium Enterprises Ministry, the State-Owned Enterprises Ministry, the Bank of Indonesia and the regional government,” he explained.

Therefore, there needs to be a regulation that obligates various government institutions to work together, seeing how one of the core problems in the country’s tax system is a lack of coordination among the government, added Prastowo.

Apart from collaborating with other government agencies, the tax office said it would also issue a regulation to ease procedures for SMEs.

Among the things to be included is a provision that SMEs will be allowed to fill out amnesty forms by hand and pool the documents at a business association, with the latter submitting the paperwork to the tax office.

 

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Heru Nainggolan is a Jakarta-based freelance writer and journalist that's been covering a variety of issues since 2011.