IO – The Government’s plan to implement a tax amnesty for the second time around is simply illogical. There are two reasons for this: First, Tax Amnesty I in 2016-2017 clearly failed. The target of increasing tax income was not achieved. In fact, after the tax amnesty, tax income to the GDP (tax ratio) continued to decrease. Tax ratio in 2018 was 10.2%, down to 9.8% in 2019, and down again to 8.3% in 2020. If we implement a tax amnesty once again, our tax ratio might fall even further. A tax ratio crash will hit our economy even harder than it is already suffering.
Therefore, the dream of giving our economic growth a “jumpstart” should be thrown out the window – especially since the officials – the President and the Minister of Finance – are the same as before. Wanting to repeat the same policy, using the same people, there’s no way you’d get different results! Really, as people frequently say, “Insanity is doing the same thing over and over again but expecting different results.”
Besides, no country in the world ever repeats a tax amnesty policy – unless there are “personal, urgent reasons” behind the whole thing…
Second, Tax Amnesty I “whitewashed” all major tax cases of the past. In other words, past officials of the Ministry of Finance and Directorate General of Taxes who were involved in tax embezzlement cases prior to 2016 have smoothly escaped the clutches of the law. To put it bluntly, officials who insist on getting Tax Amnesty II implemented most likely have tax cases pending any time from 2016 to now (2021) that they want to have whitewashed.
High officials have always tried to escape legal responsibilities, especially if they are incumbent Ministry of Finance or Directorate General of Taxes officials with something to hide. It’s just a ruse for covering their backs. Remember, one of such cases is actually quite recent: the Corruption Eradication Commission (Komisi Pemberantasan Korupsi – “KPK”) exposed a tax embezzlement case perpetrated by a coal mogul group from Kalimantan belonging to Haji Isyam. Rumor has it that the Haji Isyam Group is connected to one of the high officials strongly supporting a repeat of the tax amnesty.
Money laundering, anyone?
Capital Gains, Inheritance, Target Accounts > IDR 5 billion Should Be Taxed
Indonesia is one of the few countries in the world that do not clearly regulate the taxation of capital gains, or income generated from capital. An example of a capital gains tax is one on the sale of shares, sovereign papers and properties. Many advanced countries in Europe and Asia set relatively high taxes on capital. The average capital gain taxes in Western European countries (France, Sweden, Germany, Netherlands, Norway, Spain, Portugal, Italy) is around 30%, while the average in East Asia (Japan, Korea, China, Thailand) is 20%. Even Malaysia sets a capital gain tax of 30%.
In Indonesia, the sale of shares on the Exchange is only taxed at 0.1% of gross sales. Income from interest or sovereign market exchange discount is only 0.03% of the transaction value. Yes, brokers are imposed with a 10% VAT, but the value is peanuts because the tax is based on broker’s fee, which is usually not that much anyway (for example, the fee in futures market is only USD 30.00. At a VAT of 10%, the State only gets USD 3.00 per transaction).
Yes, there is a 10% Corporate Income Tax on dividends. However, dividends are disbursed according to the current financial condition and internal decision made by the company. Furthermore, please remember that dividends are not capital gains. Even though, to take a correct example, sale and purchase at the property market is imposed with a 10% VAT, this amount is still just 13 of what Malaysia imposes! Yes, there is a regulation that stipulates capital gain tax at 25%, but that’s only for the sale of the shares of unlisted companies. That makes it harder to verify the transactions.
To put it briefly, capital gain taxes barely exist, because the capital market itself is not taxed. This is significant. When compared with other, more advanced nations, Indonesia loves capital owners the most. Economically, Indonesia is strongly “right wing”.
To resolve this, we suggest imposing a 20%-25% capital gain taxes on all activities of sale and purchase of shares and sovereign papers in the financial market. Our simulations show that the State’s annual tax income would increase by IDR 300-400 trillion, and our tax ratio would rise by 2%-3% if we implemented this policy.
We also need to clarify regulations relating to inheritance tax. Our inheritance tax regulations are so vague, that the State loses the opportunity to tax on wealth transfer among rich families for literally decades. Therefore, we suggest a mandatory 5% inheritance tax for inherited family assets above IDR 5 billion.
Another urgent action the Government needs to take is to include bank accounts at above IDR 5 billion as tax targets. Indonesia Deposit Insurance Corporation (Lembaga Penjamin Simpanan – “LPS”) data shows that the accumulated worth of these large accounts is IDR 3.282 trillion. That’s nearly half (48.8%) of the total accumulated worth of all bank accounts throughout Indonesia! Only 110,000 accounts are worth above IDR 5 billion throughout the country. Aren’t they suitable for Government taxes in the future?