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New tax policies introduced to encourage taxpayers’ compliance
To meet the target, the government launched new policies such as, intensifying tax collection activities; reducing or eliminating administrative sanctions in tax collection; and urging the taxpayers to revise their tax returns 'Reinventing Policy'. In order to create a more attractive investment climate, the government created a tax allowance for more business sectors and plans for a tax amnesty to bring taxpayers’ funds back from offshore.
Indonesia’s tax arrears have reached more than IDR 100 trillion. The Indonesian Tax Authority (ITA) has intensified their collection and will charge taxpayers whose tax arrears are more than IDR 100 billion. The ITA also encourages the taxpayers to voluntarily settle their outstanding unpaid tax arrears payable up to 2014 in 2015. In return, the ITA may grant reduction or elimination of administration sanction upon the taxpayers’ request. However, criminal charges will be taken out against taxpayers who ignore the ITA.
In an effort to increase the number of registered taxpayers and compliance in submitting tax returns, the ITA encourages taxpayers to do the following:
- Revise their incorrect returns
- File all tax returns for fiscal year 2014 and previous years that have not been submitted,
- Settle all tax payable in 2015
Administrative sanctions which consist of fines and interest due to late submissions, revisions and late payments will be reduced or eliminated upon the taxpayers’ request. taxpayers who fail to comply with the regulation or submit false tax returns will be later audited.
Investment support, either domestic or foreign investment, is needed in Indonesia to increase economic growth. In order to attract investors, the government grants the following tax allowances for certain business sectors and/or certain areas pursuant to the Indonesia Income Tax Law:
- Reduction in net income at a rate of 5% of total investment for a period of 6 years
- Accelerated depreciation and amortisation of tangible and intangible assets
- Extension of tax loss-carried forward for more than 5 years, but less than 10 years
- Withholding tax rate on dividends at a rate of 10% or less based on the tax treaty
Investment in certain business sectors and/or in certain areas is specified under GR Number 1 of 2007 as most recently amended with GR Number 18 of 2015. Besides adding 14 new certain business sectors that may obtain such tax allowance, the new GR also changes the requirements for investment in certain business sectors and/or certain areas, such as the minimum investment value and the necessity to build smelters.
According to a study, the amount of assets parked by Indonesians in Singapore was estimated at IDR 4,000 trillion. It is considered necessary to recall the Indonesian assets deposited offshore to be invested in certain sectors to accelerate the local economic growth, as well as to raise the tax ratio and tax revenue. To accommodate this, the government plans to stipulate a tax amnesty to be effective in 2017. The plan was for taxpayers to revise their annual tax returns and list their assets/income that have not been reported in their previous returns. The ITA has threatened to audit taxpayers who do not take advantage of this programme or those who do not report their actual assets. The tax audit will be conducted using data obtained from the Automatic Exchange of Information (AEOI) programme. It is important to remember that data gathered as part of the study might be misleading. The ITA appear to have fogotten that Indonesian taxpayers are Indonesian residents and not Indonesian citizens. There are many Indonesian citizens residing outside of Indonesia.
For taxpayers, the new policy is less attractive since participants will still be required to pay back taxes for 5 years in arrears at normal rates. On the other hand, the tax amnesty could be more appealing to the taxpayer if the tax amnesty will also include the unreported assets within the country and the penalty is reasonably low.
Moreover, the implementation of Income Tax Facility for investment in certain business sectors and/or certain areas has drawn the taxpayers’ attention. Since the GR was released more than 37 taxpayers applied for this facility to Indonesia Investment Coordinating Board (BKPM).