Discourse: Putting an end to capital flight by forgiving financial crimes
The Jakarta Post
Jakarta / Tue, June 23, 2015 / 08:52 am
In a bid to bring home billions of dollars in financial assets stashed overseas, the government is planning a bill on a tax amnesty. The facility will allow financial crimes, from corruption to money laundering and tax evasion, to be exempt from all charges in exchange for the beneficiaries repatriating their assets. Finance Minister Bambang Brodjonegoro talked to The Jakarta Post's Nadya Natahadibrata, Esther Samboh and Rendi A. Witular on Sunday regarding the proposed facility. Following are excerpts from the interview:
Question: How's the progress on the revision of general tax system (KUP) law? We've heard that it will include a tax amnesty facility.
Answer: We are planning to deliberate the KUP revision first. The revision bill will be submitted during this [legislature] hearing period. We'll see about a tax amnesty. It will not be part of the KUP law, because a mere tax amnesty would not be attractive. We need an amnesty with a broader scope.
A broader scope?
A pardon for general financial crimes, including corruption, money laundering and so on. No one will be interested in complying if the amnesty only covers taxes.
What do you mean by financial crimes?
The point is that this bill is not merely about tax. We have a bigger agenda, an agenda to bring back the funds from overseas. In order to do that, people need assurances. In exchange for having to pay taxes, they want their past crimes ' which led to them owing so much ' to be forgiven as well.
They got their money somehow, and how they got it may not be in accordance with our laws, for example through tax crimes.
Most importantly, when we repatriate the funds and tell them to pay the taxes, there has to be an incentive. And that incentive is in the form of an amnesty.
Such a facility will surely draw criticism of moral hazard. How do you respond to that?
Do we want the status quo or do we want to change things? If we want the status quo, fine. But who's happy? Tell me, who is happy for the funds to stay overseas? Singapore, that's who. Once this policy is implemented, [Singapore] will be affected.
What is the value of the parked funds in question?
According to McKinsey, which was hired by Bank Mandiri to carry out a study, the total funds reach around Rp 4 quadrillion (US$300 billion) in Singapore, comprising Rp 2 quadrillion in assets and another Rp 2 quadrillion in cash.
That's in Singapore alone, not to mention [funds in] Hong Kong, Switzerland, Luxembourg and the Cayman Islands.
We are currently targeting Singapore because we assume they accommodate most [of the funds]. There are [funds hidden] in other countries as well, but Singapore is the closest, so it's the easiest. The study from McKinsey is only an estimate, not an exact amount. But the point is, it's worth going after.
Has any country ever implemented a similar policy?
There are a lot. Italy implements the scheme regularly.
Do those schemes cover funds from corruption and money-laundering practices?
Yes. In Italy, money from the mob has been repatriated. What's important is that [our planned amnesty] triggers a kind of national reconciliation to bring home our money. We spend our time cursing corruptors, but they are safe in Singapore. It's not fair. The one who benefits from their safety is not us, but Singapore.
But once again, we still need to convince law enforcers, the National Police, [money-laundering watchdog] the financial transaction report and analysis centre (PPATK) etc. That is the most important task.
Won't the facility contravene other laws?
This is a special case. We will lock the funds here once they are repatriated, preventing them from being stashed overseas again. We will find a way to lock the funds up.
Has the House of Representative agreed to this?
We'll see who will propose this bill, the government or the House. I hope the bill can be passed this year to help us bolster revenues. This is aimed at generating more income and stability. The Central Bank will be more secure and the dollar market will be stronger.
If possible, the law will be implemented this year. Drafting the bill itself is not a complicated task. The bill is quite simple. The most important aspect is to ensure that all the stakeholders are on the same page.
Whose idea was the facility?
A lot of parties, including the President, had the idea. I initially proposed only a tax amnesty. But then our friends at the taxation directorate general suggested that a mere tax amnesty would not be attractive, because [tax evaders] would only be spared from tax crimes. Their other mistakes of being part of illegal cartels or cheating on export proceeds would not have been pardoned. What would they have obtained in exchange for returning the money? Nothing. They would have remained criminals. The President also spoke to me about national reconciliation.
The amnesty should not be seen simply as pardoning those who have made mistakes. It should also serve to put an end to capital flight. We need to bring capital back into Indonesia.
Now is our chance for reform, during our first year [in government]. If we leave it too late, the political climate won't be right.
The President has said that he will deal with the law enforcement agencies himself [in support of the amnesty].