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How Indonesia is facing a huge loss in its fishery and coal trade
Indonesia’s fishery and coal commodities have been included in highly undertaxed sectors where the gross domestic product (GDP) contribution is far more significant than its tax contribution.
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Coal role: Heavy machinery is used to load coal onto trucks at the Karya Citra Nusantara (KCN) Marunda Port in Jakarta on Jan. 17, 2022. Exports of commodities like coal have helped the country maintain economic growth. (AFP/Adek Berry)
I
ndonesia has been losing about Rp 7.3 trillion (US$480 million) annually over the last decade through illicit financial flows (IFF), such as tax evasion and theft within the coal and fishery sectors. The sum was more than what the country received in development aid, as the latest Prakarsa study has shown.
The estimate in the IFF on Fishery and Coal Trade 100-page report is the most comprehensive for Indonesia’s two misinvoicing commodities. Using the Gross Export Reversal method, it compares the recorded trade value by Indonesia with all the partner countries in the fishery and coal sectors during the last 10 years.
The losses also stemmed from underreporting and cost and profit shifting to tax havens. In this case, most companies act as traders who live in countries with more efficient tax rates and even tax havens.
The report notes Indonesia's illicit value of $14.5 billion per year for only these two commodities and calls Indonesia a “benefactor of natural resources to the world,” echoing economists' observations that an actively developing Indonesia is one of the highest natural resources net capital exporters because of this trend.
The report also shows the export value of coal briquette commodities accounts for nearly three-quarters of the total annual figure. For example, it shows one sub-commodity, bituminous coal, for 49 percent of total under invoicing exports worth $13,2 billion in 2021.
On these IFF issues, several financial motives commonly make it happen. Still, the numbers came mostly from underreporting, tax avoidance under profit shifting to tax havens.
Understating a commodity's actual value and countries’ trade partners will help the government minimize money leakage gaps and identify state revenue maximization through concealed trade profits abroad, depriving developing countries of foreign exchange and eroding their tax base.
