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What Does Tax Amnesty Mean for Expats in Indonesia?

indonesia's rupiah: tax amnesty

Of course, this tax amnesty scheme could theoretically be useful for locals, while certainly helping propel the government’s agenda. But what does it mean for expats?

Considering Indonesia’s vast population of more than 250 million, outsiders likely think the country collects a fair deal of tax revenue. This assumption is wrong. In reality, there are no more than 1.2 million active taxpayers in the archipelago, said finance minister Sri Mulyani Indrawati on the sidelines of the G20 Summit in Hangzhou in early September. This figure is not healthy for the nation, the government says, as Indonesia needs tax money to push forward with the president’s ambitious infrastructure plan.

But after the press recently discovered 2,961 Indonesian names on a list related to the Panama Papers (a scandal of more than 11.5 million leaked documents that detail financial and attorney–client information for more than 214,488 offshore entities), the government now has a list of rich locals who’ve gone to great lengths to evade their taxes. Now, the finance ministry is pushing to have them pay up, along with many others in the nation.

The government got creative on July 18 of this year, implementing a new tax amnesty policy. The idea is that the policy would entice wealthy Indonesians to bring their money and assets back into local bank accounts.

If rich folks bring their assets back to Indonesia from Singapore, for example, the policy eliminates taxes already owed, and pardons them of any potential administrative or criminal sanctions. However, participants will be subject to a “redemption fee,” depending on their payable tax amount. Essentially, the government is saying, “Come on back, wealthy friends. We won’t bite…hard!”

Naturally, some think the policy is super important, as it creates a window for people in the archipelago to resolve their tax debts without getting smacked by the long arm of the law. On Tuesday in Jakarta, the finance ministry’s Directorate General of Taxation Ken Dwijugiasteadi told reporters, “Tax amnesty does not only focus on redemption, but on repatriation and declaration, [it] also aims to obtain a new tax base with about 1,900 new taxpayers registered after tax amnesty.”

Chairman of the country’s Financial Services Authority Muliaman D Hadad said the policy is designed to benefit Indonesia as whole. “Our country’s budget, revenue and expenditures won’t be enough to support the national infrastructure projects,” Hadad told Kompas. He added that by collecting repatriated funds, the country should have enough cash to continue supporting infrastructure.

Of course, this tax amnesty scheme could (in theory) be useful for locals, while certainly being useful for the government. But what does it mean for expats?

The policy is aimed at anyone who is subject to local taxes, regardless of whether they’re a citizen or even have a tax number (NPWP) on file with the government. Therefore, if you got an NPWP before this year, but just sat around eating Bonbons and transferring cash to your foreign bank account instead of paying your Indonesian taxes, then this amnesty policy can be for you too. Currently, the programme says it will take it easy on you if you repatriate your cash before September 30, with redemption fees as low as 2 percent. At the end of this month, the fees will go up, according to the government.

The tax amnesty participation window will last until March of next year. If you get in before then, you can expect to not be investigated for tax evasion. Authorities will also not factor in your tax record before 2015. Simply put, if you disclose your assets and pay the redemption fee, you get a clean slate on anything that happened before last year.

If you don’t participate in the tax amnesty programme, the government says you will owe 200 percent of your outstanding tax debt. So basically, the government has implemented a policy that carries both an incentive and a threat for tax evaders. Playtime is over, apparently. But as we all know, if there’s one thing that Indonesia is notorious for, it’s tax money not going where it should. Sometimes it even winds up in places like politicians’ karaoke rooms.

What do you think of this tax amnesty policy in Indonesia? Will wealthy locals and expats play ball?

Feature image by brpdbl

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