TAX EVASION

Indonesia hails tax amnesty a success after raising US$7 billion but special treatment for super rich stirs public anger

A long list of the country’s wealthiest tycoons have rushed to declare assets with no obligation to say where they came from

PUBLISHED : Wednesday, 05 October, 2016, 1:59pm
UPDATED : Wednesday, 05 October, 2016, 1:59pm

Indonesia has hailed a tax amnesty as a major success after it raised more than US$7 billion in its first few months, but criticism is mounting that the controversial scheme lets the super-rich off the hook.

Authorities began the flagship policy with much fanfare in July, asking Indonesians to declare their hidden wealth in exchange for paying penalties far below regular tax rates.

President Joko Widodo is desperate for extra money to boost Southeast Asia’s top economy after almost two years in power, during which his efforts to turn around slowing growth have met with little success.

The tax amnesty is only good for the big people. It’s unfair, I always pay my taxes
Johni Yusuf, businessman

The government hopes the initiative will lure back tens of billions of dollars stashed abroad, particularly in neighbouring city state Singapore, and get more people to pay tax in a country where only about 10 per cent are registered taxpayers.

The first phase of the amnesty – when people pay penalties as low as two per cent on declared assets – closed last week with better-than-expected results after a late surge in interest. More than 350,000 people declared assets totalling 3,620 trillion rupiah (US$278 billion), which brought the government 97.2 trillion rupiah (US$7.46 billion) in revenue, according to finance ministry data.

Widodo, known popularly as Jokowi, hailed the “trust from the people and the business community towards the government” while analysts welcomed the positive start to the amnesty, which runs until March. But the initiative has been watched with increasing anger by activists and some sections of the public in recent weeks as a long list of the country’s wealthiest tycoons have rushed to declare assets with no obligation to say where they came from.

Tommy Suharto, the multimillionaire son of former dictator Suharto, and James Riady, boss of major conglomerate Lippo Group, are among those who signed up.

The government has encouraged the participation of business chiefs in a bid to spur interest in the initiative after a sluggish start, with the super-rich rushed down VIP lanes in a blaze of publicity as they arrive at tax offices to sign up. But such treatment amounts to holding the wealthy up as heroes when all they are doing is paying their taxes, said Firdaus Ilyas, an activist from NGO Indonesia Corruption Watch.

“The image being built up is that people who take part in the tax amnesty are heroes helping develop the nation,” he said. “But we know if they take part in [the amnesty], it means they didn’t pay tax.”

Among the small number of Indonesians who have regularly paid their taxes, there is disappointment at the treatment being given to the super-rich simply for paying up at a rate below normal.

Regular tax rates for individuals range from 5 per cent to 30 per cent depending on income while the corporate tax rate is 25 per cent. In the first phase of the amnesty, participants pay penalties of between two and four per cent on declared assets.

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“The tax amnesty is only good for the big people,” said Johni Yusuf, a businessman in his mid-30s who runs a small shop selling household goods in Jakarta. “It’s unfair, I always pay my taxes.”

Activists have challenged the amnesty in the Constitutional Court while the anger spilled out on to the streets last week when thousands protested against the scheme in Jakarta, with demonstrators saying the money could have come from corrupt activities.

Indonesia needs the money to plug a budget deficit, and also desperately wants to get more people into its tax system – only about 30 million people are registered taxpayers out of a population of 255 million.

“You have to look at the broader picture and consider whether at the end of this you’ve got more money taken out of the black economy and put into the real economy,” said Paul Rowland, a Jakarta-based independent political analyst.