On 28 June 2016, the Indonesian House of Representatives passed a long-awaited Tax Amnesty Law which will come into effect on the enactment date. The aim of this tax amnesty program is to encourage wealthy Indonesian taxpayers with offshore assets to declare their hidden assets and pay special taxes to the Government. With such declaration and payment, the Government will pardon any criminal liability for all back-taxes and any administrative sanctions of the taxpayers for having previously failed to declare such assets. The tax amnesty covers Income Tax, Value Added Tax, and Luxury Goods Tax. The tax amnesty program will be offered in three stages: (i) the first three months after the Law is passed, (ii) from 1 October to 31 December 2016, and (iii) between 1 January and 31 March 2017.
The Tax Amnesty Law grants special tax rates ranging from of 2 percent to 10 percent depending on how quickly an individual declares his assets and whether the assets are repatriated to Indonesia. For instance, offshore assets which are repatriated into Indonesia within the first three months will enjoy the lowest 2 percent tax rate. The rate would increase to 3 percent for those who repatriate their assets by 31 December 2016, and to 5 percent by 31 March 2017. Those declaring the offshore assets but are not repatriating such assets to Indonesia will be levied a tax of 4 percent, and this will rise to 6 percent and then 10 percent in the subsequent three-month periods as above. A lower tax rate is applicable for small-medium sized enterprises. Taxpayers who choose to repatriate their assets to Indonesia must put their funds in several designated investment instruments, e.g. government bonds, corporate bonds of state-owned enterprises and other instruments allowed by the Government, as long as they keep the investments in Indonesia for at least three years.
One important legal issue to bear in mind with respect to the Tax Amnesty Law is that the amnesty only applies in relation to breach under the Tax Law. Thus, the taxpayer still faces the risk of being sanctioned for breaches under other laws. What the Tax Amnesty Law provides is that the Tax Office must not disclose the data and information to other parties, including other government agencies, without the prior approval of the taxpayer. In particular on criminal sanctions, the Tax Amnesty Law clearly indicates that the data and information cannot be used as a basis for imposition of criminal sanctions of not only under Tax Law, but also under other Laws. We are of the view that this particular issue needs further clarification from the Government side. We recommend having this risk assessed on a case-by-case basis.
The second biggest concern from a legal perspective is what will happen if the Tax Amnesty Law becomes subject to a judicial review process. Indonesian law does not provide for a set deadline for interested parties to commence a judicial review process on a new law or regulation. In this case, technically, there is a risk that the Tax Amnesty Law (including the secrecy/non-disclosure protections under the Tax Amnesty Law) may become subject to a judicial review process which may call into question the validity of the law.
We do not currently have the official text of the Tax Amnesty Law. The discussion of the bill in parliament was intensive this month but this was done behind closed doors and hence the official text is not available yet officially. That being said, we managed to obtain what seems to be the final draft of the Tax Amnesty Law. We understand that the Government is currently working on implementing regulation of the Tax Amnesty Law which will be issued by the Ministry of Finance. We will update you on the summary of the Tax Amnesty Law and its implementing regulation when the Government has announced the official text publicly.