Indonesia Tax Amnesty: What’s in Store After a Successful Initial Period
After early scepticism, Indonesia closed the first out of three tax amnesty periods with triumph by reaching Rp 4,500 trillion (± USD 360 billion) of assets declaration by 347,033 taxpayers and Rp 137 trillion (± USD 10 billion) of assets repatriation. Based on the outcome of this first period, Indonesia Tax Amnesty is considered as the most successful tax amnesty program in the world. Now the Tax Amnesty is entering the second period from 1 October to 31 December 2016.
Tax Amnesty program is a signature move by President Joko Widodo to increase state tax revenue for national development, which was materialized in Law No. 11 of 2016 concerning Tax Amnesty (“Tax Amnesty Law”) on 28th June 2016. This is a limited opportunity (from July 2016 to March 2017) for taxpayers to come clean about their undeclared assets by paying ransom money to waive tax liabilities or penalties, including fines, interests or even tax crime proceedings against the taxpayer. What attracts taxpayers to participate in the Tax Amnesty program is that the resulting ransom money is way lower than the actual penalties or interests which the taxpayers will be charged upon.
It is important to highlight that the Tax Amnesty Law is currently being challenged in the Constitutional Court by five individuals and five groups where the first petition was submitted on 13 July 2016. The plaintiffs argued that the Tax Amnesty program is discriminative and only benefits certain groups, thus breaching the 1945 Indonesian Constitution. In the first hearing, Minister of Finance, Sri Mulyani Indrawati appeared before the Court to defend the Tax Amnesty program. This shows the seriousness of the Indonesian government to ensure the success of the program until the deadline on 31 March 2017 is met.
In furthering their efforts, the Government of Indonesia has updated and amended several procedures making it convenient for taxpayers to participate, such as by adding another statement letter of taxpayer to affirm that the taxpayers will not transfer or invest their declared assets in Indonesia to foreign countries. In this second period of Tax Amnesty, the ransom money will be calculated with a higher tariff rate imposed on the assets of the declaring taxpayers.
Please see below for the detailed procedure on Tax Amnesty for the 2nd Period:
In general, the procedure to participate is similar as before. Tax Amnesty is a waiver of tax due, tax administrative sanction, and tax criminal sanction by way of disclosing undeclared assets and paying the ransom money instead of fines. The most important part of the Tax Amnesty program is the voluntary disclosure by taxpayers on their assets, either in Indonesia or offshore in the form of a Statement Letter to the Tax Office.
- Preliminary Consideration For a Taxpayer
Before applying for Tax Amnesty, a Taxpayer, who has offshore assets, shall consider first whether to repatriate his/her assets to Indonesia or not. This decision will affect the calculation of ransom money as non-repatriated assets will be imposed with a higher percentage of ransom tariff, thus a higher amount of ransom money shall be paid.
- Scope Of Tax Amnesty
The scope of tax amnesty includes the waiver of Income Tax, Value Added Tax, and Luxury goods Sales Tax, which Taxpayers had not fully or partially settle up to 31st December 2015. Hence, assets owned or received by Taxpayer in 2016 will not be subject to Tax Amnesty.
- Qualified Tax Amnesty Applicant
Every Taxpayer (having an active Tax ID) can apply for Tax Amnesty, except for Taxpayers:
- who are being investigated or whose investigative file is declared complete by the Tax Prosecutor;
- who have on-going tax trials; or
- who are settling his/her tax criminal penalty/decision.
Please note that an individual:
- who earns less amount of income than the applicable Non-Taxable Income Rate (54 million Rupiah); and
- who is an Indonesian citizen, but lives abroad for more than 183 days in a year and receives no income from Indonesia will be subjected to foreign tax,
and can choose not to exercise his/her right to apply for Tax Amnesty. Such individuals will be exempted from any sanctions related to undeclared assets under Tax Amnesty Law.
- Assets And Ransom Money Calculation
To participate in Tax Amnesty, the Taxpayer shall conduct the two following calculations:
Net Assets Determination
First, the Taxpayers shall determine the fair value of their under-declared or undeclared assets in Rupiah to find the value of their Net Assets, which will be used for ransom money calculation. Net Assets is the fair value of one’s assets minus the debts incurred upon it. As for corporate Taxpayers, the debt value is limited to 75% from their undeclared assets and for individual Taxpayers, the debt value is limited to 50% from their undeclared Assets.
Please note that the Tax Office will not verify or examine the reported fair value calculation of Taxpayer on their assets. Instead, the Taxpayer will determine a certain value of their assets, but such fair value determination shall closely follow the condition or circumstance of similar or equivalent assets.
Ransom Money Calculation
The formula of Ransom Money calculation is:
Ransom tariff x Value of Net Assets
|Assets subject to the Tax Amnesty||Tariff rate||Submission Period of Assets Statement Letter|
|Assets located in Indonesia and foreign countries, and which will be repatriated to and invested in Indonesia for a minimum period of three years.||2%||Period I (1 July 2016 – 30 September 2016)|
|3%||Period II (1 October 2016 – 31 December 2016)|
|5%||Period III (1 January 2017 – 31 March 2017)|
|Assets located in foreign countries, which will not be repatriated to Indonesia.||4%||Period I (1 July 2016 – 30 September 2016)|
|6%||Period II (1 October 2016 – 31 December 2016)|
|10%||Period III (1 January 2017 – 31 March 2017)|
|Assets subject to the Tax Amnesty||Tariff rate||Submission Period of Assets Statement Letter|
|Corporate taxpayers (small medium enterprises) whose business value is up to IDR 4.8 billion and have a disclosed asset value of less than IDR 10 billion.||0.5%||1 July 2016 – 31 March 2017|
|Corporate taxpayers (small medium enterprise) whose business value is up to IDR 4.8 billion and have a disclosed asset value of over IDR 10 billion.||2%||1 July 2016 – 31 March 2017|
- General Application Of Tax Amnesty
In general, the Tax Amnesty application can be categorized into two sets, as follows:
a) Submission of Statement Letter by the Taxpayer; and
b) Assets Repatriation and Investments.
A. Submission of Statement Letter Procedure
The details of the procedure for tax amnesty can be divided into three stages, as follows;
a) Pre-Submission of Statement Letter, the Taxpayer shall go to the relevant KPP to ask for an explanation on ransom calculation and fulfillment of theTax Amnesty conditions. At this stage, the Taxpayer shall fully pay the ransom money to the Perception Bank nominated by the Ministry of Finance and settle all of his/her tax obligation or liabilities or any other tax issues. The Taxpayer cannot pay the ransom money and his/her outstanding tax obligations in installments. In short, the Taxpayer shall settle any pre-existing tax issues before participating in Tax Amnesty program.
b) Submission of Statement Letter stage, the Taxpayer, or for a legal entity, his/her authorized person shall submit the Statement Letter  directly to the relevant Tax Office or Indonesian Embassies by enclosing the following documents:
- Proof of ransom money payment;
- Proof of all tax liability payments;
- List of assets and ownership information (i.e. location, year of acquisition, ownership evidence);
- List of liabilities and supporting documents;
- Proof of unsettled tax obligation payment;
- A copy of the latest SPT PPh;
- Statement Letter to revoke all on-going legal process or proceedings;and
- Statement letter of taxpayer to affirm that the taxpayers will not transfer or invest their declared assets in Indonesia to foreign countries.
Please note that the Statement Letter shall contain at least the Taxpayer’s Identity, total assets and liabilities, net asset value and ransom calculations in accordance with the provided form. The Taxpayer shall disclose all his/her assets in Rupiah based on the exchange rate determined by the Ministry for tax calculation stated in the latest Tax Report based on Ministry of Finance Law No. 61/KM.10/2015 concerning the Exchange Rate for the period from 30th December 2015 to 5th January 2016.
- Post-Submission of Statement Letter stage, the Taxpayer will receive a receipt and within the next 10 (ten) days, the KPP will issue a Notification Letter  as a proof of Tax Amnesty approval. Further, the Taxpayer is given a chance to submit two more statement letters (three Statement Letters are the limit) until 31st March 2017 for any undisclosed additional assets or any changes related to ransom money calculation.
B. Assets Repatriation and Investment
If the Taxpayer chooses to repatriate his/her assets into Indonesia, the Taxpayer shall transfer the assets by opening a bank account in a Bank Perception. The period of assets repatriation is as follows:
- Submission of Statement Letter for period I and II (1st July – 31st December 2016), the Taxpayer shall repatriate his/her assets before 31st December 2016.
- Submission of Statement Letter for period III (1st January 2017 – 31st March 2017), the Taxpayer shall repatriate his/her assets before 31st March 2017.
For assets owned by taxpayer indirectly through a special purpose vehicle (“SPV”), the Taxpayer must dissolve or release the ownership over the SPV by transferring his assets in the following manner:
- Change the ownership from SPV to be in the name of Taxpayer;
- Change the ownership from SPV to be in the name of the Indonesian legal entity through transfer of assets based on book value.
After the repatriation, the Taxpayer shall invest such assets for at least 3 (three) years in Indonesia in the form of:
- Government securities;
- State-owned enterprises’ bonds;
- State-owned financing companies’ bonds;
- Financial instruments in the Perception Banks;
- Private company bonds whose tradings are supervised by Financial Services Authority also known as Otoritas Jasa Keuangan (“OJK”);
- Infrastructure investment through government’s cooperation with business entities;
- Investment in real estate sector based on the priorities determined by the government; and/or
- Other lawful forms of investment in accordance with the rules and regulations.
 Statement Letter shall contain at least Taxpayer Identity, total assets and liabilities, net asset value and ransom calculations in accordance with the provided form.
 Surat Keterangan Pengampunan Pajak is a letter issued by Ministry of Finance to prove the grant of Tax Amnesty the Taxpayer
Further, investments as referred in points (a), (b), (c), (d), (e) and (h) above will be placed in the following investment instruments:
|a. bonds, including Medium Term Notes;||g. deposit;|
|b. sukuk;||h. savings;|
|c. shares;||a. giro;|
|d. units of mutual fund;||b. futures contract traded in the Indonesian futures exchange; and/or|
|e. asset backed securities;||c. other financial market investment instrument including insurance products linked with investments, financing companies, pension funds, or venture capitals which are approved by OJK.|
|f. units of real estate investment;|
Please note that the Taxpayer cannot invest his/her repatriated assets in any other investment instrument, except as described above. Further, the Taxpayer’s assets will be managed by appointed “Gateway” parties, namely a Bank, an Investment Manager and a Broker nominated by the Ministry of Finance to receive, manage and place the repatriated assets to an investment instrument for the Tax Amnesty program.
- Benefit of Tax Amnesty Participation
After obtaining Tax Amnesty, the Taxpayer will receive the incentives below:
- Waivers of tax due, tax administrative sanctions, and tax crime sanctions for all tax obligations for fiscal periods, part of fiscal years and fiscal year up to the end of the latest fiscal year, for which no assessment letters have been issued;
- Waivers of administrative sanctions in the form of interest and fines for fiscal periods, part of fiscal years and fiscal year up to the end of the latest fiscal year;
- Exemption from tax audit, preliminary evidence tax audit, and tax crime investigation for all tax obligations for fiscal periods, part of fiscal years and fiscal year up to the end of the latest fiscal year; and
- Cessation of any ongoing tax audit, preliminary evidence tax audit and tax crime investigation for all tax obligations for fiscal periods, part of fiscal years and fiscal year up to the end of the latest fiscal year.
Please note that Taxpayer is only exempted from Tax Criminal Proceedings, if his/her assets are found in the future to be related to any criminal action, i.e corruption, bribery, drugs, terrorism or human trafficking. Such Taxpayer can be charged with other criminal penalties.
Lastly, failure to participate in Tax Amnesty or comply with Tax Amnesty requirements will result in all undeclared assets of the Taxpayer being subject to the applicable income tax rate and added with 200% (two hundred percent) tax administrative sanction of the Income Tax.
- All information and documents of the Taxpayer for Tax Amnesty program will remain confidential and cannot be used as a basis for criminal investigation or indictment.
- The Taxpayer is allowed to use his/her investment instrument under the Tax Amnesty program as a guarantee to obtain credit facility from the Gateway Bank.
- In order to support the Tax Amnesty program, the FSA/OJK waives the obligation of tender offer for the Taxpayer, who used to be a nominee in a listed company, but disclosing his/her shares due to Tax Amnesty participation causing change in share ownership portion in the listed company.
The Tax Amnesty program is a work in progress as there are remaining unanswered questions, such as data confidentiality protection, possible double taxation, retroactive implementation, and the putative privilege granted to wealthy, non-compliant individual taxpayers. Regardless of any remaining issues, the Tax Amnesty program is a giant step forward from the Government of Indonesia to have a better tax system to efficiently receive higher tax revenue for the national development of Indonesia as a whole. Based on the outcome of the first period, there has been promising progress, which shall be carried on until the end of Tax Amnesty term on 31 March 2017.
If you have any questions on the content of this Client Alert or wish to discuss anything about this matter in further detail, please feel free to contact: Leoni Silitonga (Managing Partner at Roosdiono & Partners) or Sianti Candra at email@example.com (Senior Associate at Roosdiono & Partners).