Automatic Exchange of Information (AEOI) is a global initiative that contains new standards to fight international tax avoidance. It would be able to trace every single asset stored by Indonesians overseas.
After adopting these new global standards, which aims to be implemented in September 2018, the Indonesian government is moving fast to execute its plan reducing any stumbling blocks it faces. President Joko “Jokowi” Widodo’s administration will take advantage of this chance to boost the tax reform program and increase the tax ratio to improve tax compliance when the tax amnesty ends on 31 March 2017.
With declared assets from the tax amnesty standing at more than Rp 4 quadrillion (US$300 billion), the country’s tax authorities will soon be able to verify taxpayer data when banking transparency is in place.
While Finance Minister Sri Mulyani Indrawati expected taxpayers to participate in the tax amnesty before the AEOI implementation took place, the participation rate has been dismal. Center for Indonesia Taxation Analysis (CITA) executive director Yustinus Prastowo said “This can actually serve as an incentive for people to participate in the tax amnesty because the AEOI will be seriously implemented”.
However, there is one big challenge. The supportive rules for AEOI to be in place before 30 June 2017 requires Indonesia to amend five existing laws, namely the the Banking Law, the Sharia Banking Law, the Capital Markets Law, the Microfinance Law, and the General Taxation System Law (KUP).
Thereby introducing “Peraturan Pemerintah Pengganti Undang-Undang” (Perppu), also known as Government Regulation in Lieu of Law, which is a law that can only be issued in urgent cases. The government is expected to pass the regulation and have it immediately come into effect by May 2017 to meet the timeline.
On Thursday 23 Feb, Coordinating Economic Minister Darmin Nasution said: “We are not looking to implement the regulation in phases. Everything will come into effect at once. The Perppu draft is in the process and a technical team will complete it this week. We have people from the Finance Ministry, tax authority, Law and Human Rights Ministry and my staff”.
Local banks have already been complying with the United States Foreign Account Tax Compliance Act (FATCA) and had regularly sent information about US citizens’ bank accounts to the US government since 2013.
“In principal, the AEOI is similar to FATCA. Internally we are ready but still await detailed rules from the government regarding the type of data,” OCBC NISP president director Parwati Surjaudaja said the banking industry generally welcomed the AEOI standards.
Thanks to the digital age that we are in, transparent information and data exchange with worldwide tax authorities will create that trustworthy banking ecosystem. With 101 jurisdictions committing to implementing the AEOI standards, taxpayers who avoided paying their taxes by hiding their assets overseas would not be able to do so in future.