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Indonesian Tax Amnesty

Income tax and the Indonesian Government Tax Amnesty

In 2016 up to March 2017 the Indonesian government declared a tax amnesty which allowed people to be free from any obligation regarding any previously unpaid tax. All they had to do was to declare all the assets they owned at the time of joining the amnesty and pay a flat 2% (increasing to 5% at time progressed) on any assets they had not previously declared and/or paid tax on. Here we explain all about the tax amnesty, how it worked and how people could take part in it.

See the full Fixed Abode article "Taxidermy For Beginners" here

(For step by step instruction of how to lodge the tax amnesty forms go here....)

Indonesian Tax Amnesty - a Summary:

  1. The tax amnesty is only about income tax and company taxes. It has nothing to do with annual land taxes or other taxes.
  2. The tax amnesty is a “one off” opportunity for people and companies who have not paid their income tax or company tax in the past to start with a clean slate.
  3. The amnesty involves paying a nominal tax on net assets owned at 31st December 2015 that have not previously been declared in lieu of unpaid income taxes. This is a one off payment and there will be no recurring payments due.
  4. You can declare debts to be offset against assets.
  5. After the amnesty all previous tax history is wiped clean.
  6. There is no compulsion for declaring assets and anyone can declare as much or as little as they want.
  7. Indonesian citizens that are pensioners, fishermen or farmers will not have to pay the tax amnesty fee on their assets.
  8. Land and property bought before 1985 (which will include much of the family owned property most Balinese live in) is exempt from the amnesty fee.
  9. People who already have a tax number (NWPW) and have been paying their income taxes can “correct” their tax records by adding assets without having to pay the amnesty fee.
  10. People are free to declare as much or as little as they like. There may, in fact, be benefit in declaring the value of property on the high side to keep down future income taxes.
  11. The tax amnesty is not compulsory - people can take part only if they chose too.
  12. If you have a nominee arrangement you should not declare the property on your declaration.
  13. If you have leased land then the owner should declare the land (if purchased after 1985) as their asset. The lease itself is an asset and should be declared by the leaseholder.
  14. If you build on land the building itself is an asset and should be declared, you may find it appropriate to declare the building separately from the land.
  15. Generally speaking people who are owner/directors of CV companies do not have to pay personal income tax because their company pays the company income tax. In these cases assets can be declared in the company’s name and the tax fee will be considerably lower than the 2% for individuals.
  16. The tax office will not pass on information to other departments.

What is the tax amnesty all about?

“Oh bum, the tax man cometh and I’m stuffed”
“Fear not, help is at hand.”

The Indonesian government is aware that there are many people and companies who have not been paying taxes on their income. To bring people and companies into the system and give them a fresh start the government is offering a tax amnesty to give them the opportunity to clear up their existing tax issues at a nominal cost and start again with a clean slate.

Major moves are afoot (or ahand?) in the Indonesian tax department that may or may not have an impact on many people, both locals and foreigners, who live or own property or have other assets in Indonesia.

These moves provide a rare opportunity to clear out the closet, skeletons and all, and come clean, a chance to pay a nominal sum, draw a line under all previous history and start again with a clean slate.

I am, of course, referring to the Indonesian Government’s tax amnesty.

The people’s darling, Sri Mulyani, a highly respected economist with high integrity, has returned from her role as Managing Director of the World Bank and has been appointed Jokowi’s new Finance Minister.

Several years ago Sri came up with the idea of a “tax amnesty” to get everyone honest again and bring them into the real world of paying their fair share of taxes.

Her scheme is now up and running and the Indonesian Government are taking this seriously and their real targets are the big players. We are talking trillions of Rupiah held in overseas banks and investments that, because of previous unpaid taxes, cannot be brought back to Indonesia by their owners. Already, after only a short time, large sums of money are returning to Indonesia and, as at August 24th, Rp 53.7 trillion in assets have been declared and Rp1.07 trillion repatriated to Indonesia.

There has been a lot of concern regarding the amnesty particularly among people who own property or are in the real estate industry. Certainly there has been a lot of fear among local people across Indonesia and the government has issued several statements to try and clarify things.

Before we go into detail I must stress that I am not a tax expert or even a taxidermist although I do have a very good accountant and an tax consultant to help me get through the tax jungle. I provide this information as accurately as I can determine at this stage because a deadline is approaching and it is important that people, particularly property owners are made aware of it.

As many people will know the advice we get from “experts” can vary according to who you talk to and what their agenda happens to be so I advise that you seek out second or third opinions if the answers you get are inconsistent.

Amnesty Help Desk

If you have any questions your first point of contact should be the Amnesty Help Desk at a tax office. They provide a very good service with polite informative staff, it is free of charge and you can talk to the staff in full confidentiality.

Income tax in Indonesia

Let us start by understanding income tax in Indonesia.

If you are resident in Indonesia for more than 183 days in a year you are classed as resident and you should have a tax ID number (an NPWP or Nomor Pokok Wajib Pajak) and you need to fill in a tax return each year and pay income tax on any income you receive more than a minimum amount of Rp54 million a year.

2016 Income Tax rates in Indonesia are:

income tax rate
Rp 54 million per year or less 0%
Up to Rp 50 million above the Rp54 million threshold 5%
50 to 250 million above the Rp 54 million threshold 15%
250 to 500 million above the Rp 54 million threshold 25%
Above Rp 500 million above the Rp 54 million threshold 30%

Sample calculation

If we take as an example an income of RP 600 million this will be calculated as follows:

Income step Tax amount
Rp 54 million @ 0% 0
Rp 54 to 104 million = Rp 50 million @ 5% Rp 2,500,000
Rp 104 to 304 million = Rp 250 million @ 15% Rp 37,500,000
Rp 304 to 554 million = Rp 250 million @ 25% Rp 62,500,000
Rp 554 to 600 million = Rp 46 million @ 30% Rp 13,800,000
Total Tax Payable Rp 116,300,000

Income from overseas

If you receive money from overseas that has already been subject to tax overseas (such as pensions, superannuation, etc.) it may be that you have to pay tax on it but you need to check this out. Some people who receive pensions from overseas are being taxed on their income.

What is the purpose of the tax amnesty?

Many people in Indonesia have not paid their fair share of income tax in the past and this could amount to a lot of money so, to keep track of people’s wealth and any income they might have received, it is a requirement that a person’s assets are declared on their annual tax returns. The thinking behind this is logical, to acquire assets you must have had some income so the question follows "have you paid tax on that income?"

Rather than trying to investigate and catch up with many years of complex history regarding previous income tax payments the tax office is saying “what are your assets at the point of time of the amnesty (31st December 2015)?” Anything not previously declared can be declared now and, as a substitute for income tax not previously paid, you can pay a nominal amount on the assets and in return the tax office will clear any tax liability before that date and they will not ask where the assets or money came from.

The tax amnesty applies to everyone living or having investments in Indonesia. It also applies to companies.

Advantages of the tax amnesty

The great advantage people get from the tax amnesty is that any income earned before the amnesty date will never be investigated in the future. For the many people who have not been paying their full income taxes this can be a very good deal. It is a quick and easy way of drawing a line in the sand on the past and providing a new start.

The tax amnesty may be very useful to clear up your outstanding tax issues but it may also give you another benefit - the opportunity to free yourself from a poor accountant or a dodgy agent who has got you into a mess.

I am aware of a couple that always tried to do everything correctly but ended up losing their business and moving overseas because of the dodgy practices of a tax consultant who gave them some very bad advice. This amnesty could have saved them.

How do we join the tax amnesty?

Forms are available from the tax department. You simply fill in the form delcaring any undeclared or undervalued assets and pay the amnesty fee before the deadline

If a person does not have a tax number then they must register with the tax department to get a number so they can then declare the asset and pay the amnesty tax rate.

For step by step instructions go here........

What are the deadlines and how much are the tax amnesty charges?

The amnesty will continue until the end of March 2017. Tax is paid at different rates increasing as time goes on:

  • If declared before the end of September the rate is 2%.
  • If declared in the period October to December 2016 the rate is 3%.
  • If declared in the period January to March 2017 the rate is 5%.

What should be declared?

Personal assets may include financial assets such as money in the bank, investments, land and property that is owned or leased, cars, and other things of value, for companies assets may include property owned, future paid rents, inventory, furniture, tools, equipment and other assets such as trademarks and patents. The amount to be declared is their value at 31st December 2015.

Assets that have already been declared (and continue to be declared) on a person’s tax return are not included for amnesty purposes and do not attract the amnesty tax.

If a person or company already has a tax number and is confident that, over the years, they have paid their income tax but didn’t bother to declare the assets they own, they can have their existing tax records “corrected”. They do not have to join the tax amnesty but instead the asset can be added to their income tax declaration without having to pay the amnesty fee.

Do I have to declare and how much should I declare?

There is no compulsion for declaring assets and anyone can declare as much or as little as they wish. It is probably a good idea to declare the full value because this may avoid higher taxes later.

Note that if you buy property and sell it at a higher price the difference will attract a tax. This tax rate varies from time to time however it is generally understood to be around 5%.

Sharing of information

For some people the sharing of information may be a major concern. We understand that the tax department are forbidden from sharing any information from the amnesty with any other government departments (such as the KPK, land registration department, manpower, immigration. etc). There are serious penalties (up to 5 years in jail) for any tax office employee that does share information.

Penalties for non declaration

Penalties will be heavy for non declaration. If assets, such as your property, are not declared now but are discovered later then the asset will be regarded as income and a heavy tax may be charged (if the “income” is more than Rp500 million a hefty tax rate of 30% applies). Not only this but, as a penalty, an additional 200% of the tax will also have to be paid.

So if someone doesn’t declare and later their assets are discovered they could incur a penalty of over 90% of any undeclared assets (30% unpaid tax plus a 200% penalty plus interest), they could lose virtually everything.

It can be seen that the amnesty tax rate of 2% is a low cost to pay to avoid what could be very expensive problems in the future.

Will you get caught?

The tax department is tightening all aspects of income tax collection and in 2018 they will have access to everyone’s bank account details. International moves to stop money laundering are closing tax havens and making banks across the world share customer account information. In addition the banks have systems that flag large bank accounts and unusual transactions which can be investigated. If you buy or sell land it is likely the transaction will be flagged for investigation.

Property ownership and the tax amnesty

Property is a key issue for many people.

For anyone who has bought property after 1985 for themselves or under a nominee arrangement (including their wife) the property should be declared as an asset on the nominee's tax return.

If the asset has already been declared on the owner’s income tax declaration there is no need to declare under the tax amnesty.

If you have undeclared land or property then you will need to declare it and make a one off 2% payment on it. If it is in your wife’s name (as long as you have a prenuptial agreement) then she should declare it. If you are a foreigner and you do not have a prenuptial agreement your wife cannot own land anyway.

If the person declaring the asset does not already have a tax number they will need to register one to make the declaration.

If you have a nominee ownership arrangement you may need to be careful. If the land is family land that the nominee’s family has owned for many years there may or may not be a problem however if the land was bought after 1985 by you in your nominee’s name and your nominee does not declare it he/she may be vulnerable to being found out and getting a very heavy penalty at a later date which may or may not impact you indirectly. It would be best to clear the matter up now while you still can. It may be that you can pay the 2% for your nominee however he will need to have a tax number. You should get some professional advice on this.

Some Examples

1 - Retired Expatriate

Let us consider an expatriate who has bought a house in his Indonesian spouse’s name and neither he /she nor the spouse are registered for tax (incidentally they must have a prenuptial arrangement or the ownership is illegal). The expatriate’s “gift” to his/her spouse is considered an income for the spouse and so it is best to register for a tax number and declare the asset and pay at the tax amnesty rate. The expatriate him/herself may register for a number but cannot declare the land in his/her name because expatriates cannot own land.

2 - Working person with undeclared earnings

Let us consider a man who in the past got an occasional job working as an international consultant and earned heaps of money, he has money in the bank and owns property worth say 3 billion rupiah. The income should have been taxed at the rate of 30% (Rp 900,000,000) but the tax wasn’t paid. If he declares the assets he can pay only Rp60,000,000 and be free of any further investigation of any income he received before 31st December 2015.

3 - Property speculator

There are major implications for anyone who may have come to Indonesia and bought large tracts of land for speculation purposes. An 8 hectare (80,000 square metres) piece of land worth Rp 250 million per are in December 2015 was worth a staggering Rp 200 billion. If bought after 1985 this land can be declared for a 2% fee (Rp 4 billion). If they sell the land at the same price and it hasn’t been declared they may be liable for income tax on Rp 200 billion most of which will be at a rate of 30% which is around Rp 60 billion. If they get caught with the undeclared land they may be vulnerable to a penalty of 90% which would be around Rp 180 billion!

If you have more questions go to the tax amnesty help desk.

Finally I must stress again that I am not a tax expert and to get more dependable information you need to go to a GOOD accountant who understands this stuff. Unfortunately tax agents are rather like visa agents and finding one you can trust can be rather like trying to find a needle in a porcupine’s underpants.

Copyright © Phil Wilson August 2016
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