Will Indonesia be SE Asia’s new tax-haven paradise?

Romesh Navaratnarajah17 Aug 2016

Tropical beach on Bintan island resorts, Indonesia

Several islands in Indonesia and Malaysia may share the spotlight with Singapore.

To meet its infrastructure targets and bridge a growing budget deficit, the Indonesian government is discussing the possibility of establishing tax haven jurisdictions in two of its islands.

Coordinating Maritime Minister Luhut Panjaitan announced on Sunday that the government would allow Indonesian and foreign businesses to form shell companies in the islands of Bintan and Rempang, roughly 60 kilometres from Singapore.

Businesses are known to create shell companies in Singapore, where foreign investors can domicile businesses and pay little to no taxes.

Singapore ranked fourth in the maiden Financial Secrecy Index by the London-based lobby Tax Justice Network, which ranks jurisdictions according to their secrecy and the scale of their offshore financial activities.

Nearby in Malaysia, the island of Labuan is also angling for tax haven status with the proposition of taxing profits at just three percent.

“This is actually a good idea for Indonesia, particularly with the tax amnesty program already underway,” Panjaitan told The Jakarta Globe.

These plans are in keeping with the government’s tax amnesty programme, designed to lure back IDR560 trillion rupiah (USD43 billion) in capital from abroad toward real estate investments and gold. The central bank has estimated that IDR1,000 trillion (USD76 million) may flow abroad yet again when the management of the funds expires after three years under the amnesty.

Panjaitan told Bloomberg the plans for the tax havens are “still in early stage” and that “the government still needs to discuss the technical aspect of it”.

The creation of the tax havens would also need revisions to the existing taxation code and the streamlining of bureaucratic processes.

President Joko Widodo’s administration has been initiating measures to shore up government revenues for infrastructure projects amid a slowing Chinese economy and faltering commodity values.

The rupiah, the third-best performing currency in Asia so far in 2016, strengthened to 5.1 percent this year.

 

This story was originally published on property-report.com and is reproduced as part of an editorial partnership between PropertyGuru.com and Property Report.

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