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EDITORIAL: Hunting tax evaders overseas
A minimum tax ratio of 15 percent is needed to significantly accelerate growth and development.
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Aerial view of sidewalk of Orchard road in Singapore. The nine-month tax amnesty that ended in March was able to uncover more than Rp 1 quadrillion (US$86 billion) in financial and fixed assets overseas owned by Indonesians. About 60 percent of the amount was parked in Singapore. (shutterstock.com/deeepblue/File)
T
he government has yet to work harder to meet legislative and regulatory requirements to be able to hunt down tax evaders overseas under the Automatic Exchange of Information (AEOI) global agreement between tax authorities, which has been signed by more than 100 countries, including the so-called tax-haven countries.
First of all, the House of Representatives still needs to achieve a national political consensus to approve Presidential Regulation in Lieu of Law No. 1/17 on access to financial information and accounts for taxation purposes. Without endorsement of the regulation in lieu of law, Indonesia will not be able to avail of the AEOI.
The House also has yet to ratify two other agreements that the government and more than 100 other countries have signed to implement the AEOI. One of them is the multilateral competent authority agreement (MCAA) that lays out an international framework to facilitate the automatic exchange of information. The MCAA enables signatory countries to implement the AEOI without first going through time-consuming and complex negotiations for multiple bilateral agreements. The other agreement is on common reporting standards for the AEOI.
Then the government still also has to sign an international agreement on the confidentiality and protection of data before Indonesia can start sharing financial data automatically with other countries. Unlike Indonesia, Singapore has completed all the necessary instruments to implement the AEOI.
Many countries have placed high expectations on the AEOI mechanism to hunt down tax evaders and to minimize tax avoidance and prevent money laundering. Indonesia especially will be able to significantly boost its tax base through the AEOI.
For example, the nine-month tax amnesty that ended in March was able to uncover more than Rp 1 quadrillion (US$86 billion) in financial and fixed assets overseas owned by Indonesians. About 60 percent of the amount was parked in Singapore. The tax pardon also uncovered another Rp 3.7 quadrillion worth of assets within the country that had remained outside of the tax net.
The tax amnesty has validated the perception that tax evasion in the country has been massive, as can also be seen in the very low tax ratio (tax revenues as a percentage of gross domestic product) of just 10.30 percent, among the lowest in the ASEAN region.
As International Monetary Fund (IMF) deputy managing director Mitsuhiro Furusawa noted in Jakarta on Wednesday, a minimum tax ratio of 15 percent is needed to significantly accelerate growth and development.
Certainly, strengthening revenue mobilization also requires a wide range of other measures, including a more vigorous tax collection effort and efficient and clean tax administration. But given the huge amount of assets that rich Indonesians have parked overseas, the AEOI mechanism will be helpful indeed.
The government is desperately seeking more tax revenue. It was recently forced to cut various expenditure allocations and revise upward its budget deficit estimate to 2.9 percent for this year, only one notch below the fiscal deficit ceiling of 3 percent as mandated by law, because tax receipts are estimated to be way below the target.
