We highlighted several examples of letters sent by the Tax Office to dearest taxpayers in our previous installment of Frequently Asked Questions (FAQs) on Tax Amnesty. The unprecedented level of scrutiny by the Tax Office indicates serious commitment to tax reform to increase the country’s tax revenue. Finance Minister Sri Mulyani Indrawati emphasized the importance of designing a robust, credible and accountable institution supported by Big Data, Geotagging, and Information Technology Analytics. With grand ambitions of reaching a tax base of 15% of Indonesia’s GDP, the Government is taking serious action.
How many such letters to taxpayers did the Government send?
The Directorate-General of Taxation (DJP) announced in major newspapers in December 2016 that over 204,125 “love letters” were sent to appeal for greater participation in Tax Amnesty. More letters will be sent based on analysis of government and third party databases showing assets above IDR 25 million (approx. USD 1,800) including motor vehicles, shares, buildings and land. Given the relatively low value of assets being targeted, the Tax Amnesty appeals program is broad-based and overarching.
Where did the Government get these data on taxpayers assets from?
The DJP has access to asset lists of taxpayers who have not participated and those under-reporting in Tax Amnesty. These data were queried from existing tax and other government databases. In the next few months, Tax Amnesty Priority Targets will be identified by asset tracing, searching the following databases to classify Prominent, Non-Prominent, and Small and Medium Enterprises (SME) taxpayers:
- Orbis: Database of private companies worldwide including their financials and ownership and governance structures
- Accounting and Corporate Regulatory Authority (ACRA): Government of Singapore’s database of private companies
- Ministry of Law and Human Rights database of companies
- Bank of Indonesia list of debtors, credit cards and transactions
- Building Permit (IMB) owners
- Motor vehicle, yacht and cruise ship ownership databases (BPKB)
- Taxpayers’ data e.g. photographs combined with geotagging of High Net Worth Individuals and businesses, from which the DJP has identified 1 million additional taxpayers5
- Small Business Loans (KUR) recipients with potential of reaching up to 3.3 million taxpayers6
- Online merchants touting their goods on Facebook, Instagram and Kaskus, estimated to yield IDR 15.6 trillion (approx. USD 1.6 billion) in tax revenues
- Professionals such as doctors, lawyers, accountants, tax consultants and Directors and Commissioners of listed companies
- Export and import data at Directorate-General of Customs & Excise
What are the consequences for non-participation or under-reporting in Tax Amnesty?
Under Article 18 Law No. 11 of 2016 on Tax Amnesty, taxpayers who do not participate or under-report in Tax Amnesty and are found with unreported assets between 1985 – 2015, will be subject to progressive income tax pursuant to Article 21 (PPh 21) plus a penalty. The penalty for non-participation is 2% per month for up to 2 years or 48% of the tax due. For those who under-report, the penalty is 200% of the tax due.
With the ongoing tax reform, tax evaders have been imprisoned. An example was made of a property boss in Central Java being put in Nusakambangan Penitentiary for owing IDR 839 million (approx. USD 63,000) in taxes due9. A list of 4,000 foreign investment companies (PT PMA) has been reported as not having paid any taxes for as long as 10 to 40 years, and Tax Officers carry warrants for arrests for companies suspected of transfer pricing and shareholder loans.
What criteria are being used by DJP to actively identify potential tax revenues?
In Director’s Letter No. S-192/PJ.08/2013 on the Extraction of Tax Potential and Receipts from Individual Taxpayers, released in October 2013, the Director of Tax Potential and Receipts instructed local and regional Tax Offices to conduct searches on government and external databases for:
- Taxpayers whose net increases in assets do not correspond to increases in their taxable income
- Taxpayers without tax returns but earn incomes as evidenced by Bukti Potong, share ownership and/or loans to third parties
- Taxpayers who sold shares since 2011 indicating capital gains
- Taxpayers who had an increase in loans held to third parties as indication of interests and possible undeclared incomes earned
- Bukti Potong for income taxes pursuant to Articles 21, 23 and 4(2) (PPh 21, 23 and 4(2)) and cross-checking against the taxpayers’ expenses, assets and their annual income tax returns
- Clarification via visits, observations and interviews to taxpayers regarding their sources of income
- Transfer of shares in non-listed companies based on historical costs and market values of such shares
As we can see, extraction of taxpayers’ data with the purpose of expanding tax revenues began in 2013. Riding on the momentum of Tax Amnesty, the above lists obtained from government databases are being used to generate Priority Targets of taxpayers to appeal for Tax Amnesty participation.
Have these efforts been successful in increasing tax revenues?
Payment of tax due has increased by 30% year-on-year, reaching IDR 36.9 trillion Rupiah (approx. USD 2,8 billion) at the end of 2016. The number of forceful appeal letters has gone up 92% in 2016 compared to 2015, reaching 346,000 letters. Confiscation letters amount to 17,700 in 2016, compared to only 9,000 the previous year. Prison sentence for tax evasion has doubled from 38 to 74 people.
What other ways are the Government trying to increase tax revenues?
The most recent example is Indonesia’s enthusiasm on signing the Country- by-Country Reporting (CbCR) Multilateral Competent Authority Agreement to discourage transfer pricing practices by requiring companies of above a certain revenue level to provide tax reports reflecting activities in multiple countries11. The National Land Authority (BPN) is also imposing progressive tax on idle land to discourage land banking for long-term investments as the latter is considered unproductive use of land12.
Where do I get help on my individual and corporate taxes and other compliance?
Here at Putranto Alliance, our Tax Attorney is licensed by the Ministry of Finance and the Chief of Tax Courts to give tax advice and represent you in Tax Court. Please contact us at the address below if you require any assistance on:
Tax Amnesty, Tax Planning & ReviewTax Compliance, Tax Compliance, Tax Advisory, Tax Court Representation, Accounting & Bookkeeping, Financial Statements, Investment Advisory, Legal Advisory, Legal Due Diligence, Mergers & Acquisitions, Liquidation, Business & Property Search, Property Valuations, Property Transactions, Property Title Deed Administration, Land Acquisition, Land Due Diligence, Permits & Licenses, Bank Loans and Collateral Deeds, Intellectual Property Consultation, Notarial Deeds, Estate Planning and Employment Administration.