Undisclosed Wealth at HomeDouble ThanThose Overseas

There is another week to go before the first 3month phase of the tax amnesty program ends. Although last week's preliminary results of repatriated funds from Indonesian tax payers' bank accounts, amounting to Rp75.3 trillion, remain disappointing and far below the Rp1 quadrillion target, there is an encouraging sign that government tax revenues, which are now at Rp33.5 trillion, are rising fast. Tax revenues under the program are derived from a tax rate multiplied against the current Rp1.395 quadrillion worth of undisclosed wealth held, both overseas and at home. In fact, the portion of undisclosed wealth reported locally, at Rp935 trillion, is surprisingly more than double the Rp385 trillion wealth kept abroad.

The longheld view is that wealthy Indonesians keep a large portion of their funds overseas. This is why one of the main objectives of the tax amnesty program is to give enough incentives to bring these funds back home. The sweetener was the promise from the tax office not to investigate the source of income used to acquire these undisclosed wealth, in return for paying an attractive single digit tax rate on the disclosure of unreported wealth, both at home and abroad. But there is some flexibility built in for overseas funds, but the tax rate applied for those wanting to keep these funds abroad is higher than the rate for those willing to repatriate these funds.

September 27, 2016