Friday, August 19, 2016

Tax amnesty in Indonesia

The tax amnesty has started in Indonesia.

An Indonesia tax payer is allowed to declare his past undeclared income and pay a tax of 2% if the money is brought back into Indonesia and 4% if it is kept overseas.

For example, a tycoon had earned income of $100 million and did not pay any tax on it in the past years. He can now declare this income and bring it back to Indonesia by paying 2% or $2 million. He will not be prosecuted for failing to declare the income in the past. If he keeps this income overseas, e.g. in Singapore, he pays a tax of 4% or $4 million under the amnesty plan.

The tax increases from 2% for the current quarter to 3% for the next quarter, then 4% for the following quarter and finally 5%. If the income is kept overseas, the tax is doubled. This gives the incentive for the taxpayer to declare the income earlier and enjoy a lower rate of tax under the amnesty plan.

An Indonesian friend told me that it is better to declare the income earlier and pay 4% and keep the money in Singapore. The taxpayer will become free of future prosecution for tax evasion in the future.

The tax amnesty plan is created by President Jokowi to bring additional tax revenue to the Indonesian budget. The tax authorities were not able to catch the tax evaders in the past. This is a way to bring some revenue, although it is only a small portion of the tax that should have been paid. It is a pragmatic approach.

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