The Taxation Directorate General will begin to implement Automatic Exchange of Information (AEoI) between countries at the end of September. The government will use an abundance of data from AEoI to pursue taxpayers who did not participate in the tax amnesty program and those who participated but did not declare their assets correctly.
Director of Counselling, Services, and Public Relations at the Taxation Directorate General Hestu Yoga Saksama said Indonesia is ready to implement the tax information exchange program followed by 147 countries because it has been preparing for three years. “We have already run the AEoI implementation process since Indonesia signed the data exchange commitment in the Global Forum on Transparency and Exchange of Information for Tax Purposes in 2015,” he said, Friday (9/14).
After signing the commitment, each country must prepare a series of regulations and infrastructure to implement AEoI. For example, ratification of domestic regulations in accordance with the rules in the agreement, the availability of a reliable data exchange technology system, and assurance of confidentiality and data security that is proven through an inspection process or assessment on confidentiality and data safeguards from other countries.
An important milestone in the AEoI implementation process was the issuance of Government Regulation in Lieu of Law (Perpu) No. 1/2017 concerning Access to Financial Information for the Taxation Purposes, which was later enacted by the House of Representatives (DPR) into Law No. 9/2019.
The law eliminates the banking secrecy rule that was previously regulated in Banking Law No. 10/1998. After the issuance of the law as a legal umbrella, the Ministry of Finance, the Financial Services Authority (OJK), and the Directorate General of Taxation were able to issue other implementing regulations.
The core of the information exchange is that domestic financial institutions must report their customer data regularly, and without being asked, to the taxation directorate general for tax purposes. The data that must be reported is customer identity, account numbers or customer accounts, identity of the financial institutions, account balance, and income earned from the accounts.
This data will be exchanged with similar information obtained by tax authorities in other countries. Thus, the tax authorities of each country involved in the AEoI agreement can obtain complete information about the income and assets of taxpayers in their own country and those that are placed in other countries.
According to the Director of International Tax at the tax directorate general John Liberty Hutagaol, there are currently 5,182 domestic financial institutions that have reported their customer information to the tax office. The tax authorities ready to exchange information come from 88 jurisdictions.
They include Australia, Netherlands, Bermuda, British Virgin Islands, Cayman Islands, Hong Kong, UK, Japan, Luxembourg, Panama, China, and Singapore. As soon as AEoI is implemented at the end of September, the tax directorate general has access to information on the assets of Indonesian taxpayers in those 88 jurisdictions.
The first target is taxpayers (WP) who did not report their assets in the annual tax return form (SPT) and did not participate in the tax amnesty program. The second is those who participated in the tax amnesty program but did not report their assets correctly.
Those who have abundant assets but did not report them in the SPT and did not participate in the tax amnesty program are the first targets because the amount is thought to be quite large. This is because the tax amnesty program was expected to attract 2 million taxpayers, but in reality there were only 973,426 participants.
Taxpayers who participated in the program but did not report their assets correctly have long been suspected by the tax directorate general. This is because the declaration of domestic assets – Rp 3,660 trillion – dominated the total asset declaration of tax amnesty participants – Rp 4,884 trillion. Meanwhile, the declaration of assets originating from abroad was only Rp 1,224 trillion.
According to the Ministry of Finance’s study, the amount of assets belonging to super rich taxpayers (high net worth individuals/HNWI) in foreign countries is US$ 250 billion, or Rp 3,500 trillion if it is multiplied by an exchange rate of Rp 14,000 per USD. When compared with smaller domestic asset declarations, it means the taxpayers who participated in the tax amnesty probably have not reported all of their assets overseas.
About 75 percent of the overseas assets are allegedly placed in Singapore, meaning there are assets of domestic taxpayers worth approximately Rp 2,625 trillion there. Although the largest compared to other countries, the declaration of assets from Singapore in the tax amnesty was only Rp 766.05 trillion. This means taxpayers who participated in the program probably have not reported all of their assets in Singapore.
The tax amnesty ended on 31 March 2017. After the end of the program in accordance with existing rules, the tax directorate general has the right to examine the compliance of taxpayers who participated in the program but did not report their assets correctly. The tax office also has the right to examine taxpayers who are suspected of possessing assets that have not been reported and did not participate in the tax amnesty.