Tax amnesty for corporate tax payers: pro and cons

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The Indonesian tax amnesty program is a government effort to repatriate unreported assets and bring back to Indonesia funds kept oversees. The scheme gives tax-evaders the chance to come clean with reduced or waived interests and/or penalties.

The tax amnesty program applies to both private and corporate tax payers. It runs for a limited time period only. The scheme should benefits all parties. The government first and foremost, hoping to retrieve part of the the revenue it missed out on. But benefit also comes to the taxpayer themselves, receiving the opportunity to make up for unpaid taxes by an oversee-able amount.

 

The tariffs applied under the tax amnesty program depend on where the asset is parked. (Source: http://www.pajak.go.id/amnestipajak)
 (Source: http://www.pajak.go.id/amnestipajak)

Pros of participating in the Tax Amnesty Program

 

1. The tax amnesty scheme motivates tax payers to conduct business legally and remain compliant tax rules. Tax evasion negatively hurts the business, by means of high interests or penalties and legal punishment.

2. Compliance with tax regulation upholds a positive reputation. Indonesia uses an Automatic Exchange System of Information which allows government departments to look into your data. If you have bad debt or tax regulations violations, it could impact your business such as difficulty obtaining or extending licenses, renewing your company information, prolonging visas, and other bureaucratic difficulties.

3. Buying property without healthy tax record is nearly impossible, especially for foreign companies. To keep this freedom and to expand on property assets in the future, the business needs to have a clean tax record.

4. Under the scheme businesses are not required to pay the interest from unpaid taxes.

5. The business and its representatives avoid legal issues or disputes. If a tax evasion case was brought to court, voluntarily reporting taxes stops the investigation process.

Cons of participating in the Tax Amnesty Program

 

The Indonesian government took a long time to make the decision for the Tax Amnesty Program implementation. Some of the argued drawbacks include:

1. People could deliberately avoid taxes if they anticipate more tax amnesty programs in the future. This would make the measure an actual incentive to avoid taxes rather than report them. However, the limited time period of the tax amnesty program, a credible ministry of finance, and Common Reporting Standards which forces the exchange of account holders information makes tax evasion increasingly difficult. The penalties for tax evasion are high.

2. Companies with assets abroad are motivated to bring their assets back to Indonesia. This goes against the interest of the countries from which the assets will be taken away. Those countries then take measures to prevent assets and money flowing back to Indonesia. An example is Singapore, which requires private banks to report clients participating in the Indonesian tax amnesty, while holding tax evasion as a criminal offense. Business will then need to choose between Indonesia and the country where they stashed their assets.

3. Business representatives fear the tax amnesty policy will future problems if the confidentiality of this policy is not guaranteed by the government.

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