Preliminary figures on the Indonesian tax amnesty suggest Singapore has reason to be concerned about this area of business, but not to panic.

My interviews and meetings with bankers and wealth industry professionals in Singapore last week left me with the strong sense that while Indonesia’s tax amnesty, which has passed its first phase, has forced some hard decisions about staffing and deployments out of Singapore, the impact on the city-state is not calamitous. 

According to figures from banking group RHB, the tax amnesty has seen far fewer funds moving from Singapore’s private banking sector than some might have feared. Funds leaving the city-state made up just 1-2 per cent of assets under management in the jurisdiction. As reported a few days ago, around $8.3 billion has been repatriated in the first phase of the programme, which was launched following legislative approval in the summer.

Singapore’s status as an international financial centre saw it attract significant sums from Indonesia. Industry practitioners tell me one important reason has been how, during the civil turmoil in the late 1990s, wealthy Indonesians were attracted to Singapore’s robust legal system and political stability. This is indeed a reminder that safety, rather than low tax rates, is often the main reason for choosing an offshore centre, as is also the case in places such as Switzerland. It is also a fact that policymakers, eager to promote transparency, need to bear in mind so as to not put legitimate privacy at risk.

The amnesty, one of around 50 operated by countries worldwide, works on the basis that those who declare offshore assets pay a 2 per cent tax on assets. The first phase of the programme ended on 30 September and it continues until March next year.

Reports said the amount repatriated equates to 12 per cent of the assets of Indonesian clients declared to be kept in Singapore. A report in the Straits Times said that director-general of taxes Ken Dwijugiasteadi expects the amnesty to bring in about Rp4,500 trillion ($346 billion) worth of assets by the time the final count for phase one, which is still in process, has been completed. He said the authority will focus on small and medium-sized businesses among those in the second phase of the programme.

RHB has reportedly estimated that total assets of the three big Singapore banks' private banking arms – DBS, OCBC and UOB – are about S$321 billion, or to put it another way, 2.6 per cent of the three banks' total AuM. 

When the money is brought back to Indonesia people have a choice of 32 institutions - banks, investment firms and securities companies - with which to hold this wealth. People repatriating funds have eight investment instruments they can use - a fact that may prove irksome to Indonesians used to more sophisticated instruments in Singapore, so industry insiders tell me. The instruments on offer have a minimum three-year maturity, designed to ensure that there is no incentive, no doubt, for people to pull out of them any faster.

As reported, those repatriating funds must open accounts in appointed trustee banks before shifting their assets to investment instruments in the amnesty programme. The approved eight investment channels are government bonds, state-owned enterprise bonds, government-owned financial institution bonds and five financial investment products issued by trustee banks.

The amnesty is likely to prompt hard decisions by banks with teams of Indonesia-focused relationship managers about whether they can afford to keep such staff in their current - often expensive - roles for the next few years, and how to partner with local Indonesian banks to ensure Singapore retains some of the financial action. Singapore, like many other countries, now lives in a world where automatic exchange of information under the new Common Reporting Standard regime is a fact of life. Meanwhile, with recent controversy around financial flows through Singapore (and other centres such as Switzerland) from Malaysia’s scandal-hit 1MDB fund, this has not been the easiest of summers for Singapore’s wealth management community. However, it needs to be said that Singapore’s reputation for high-quality private banking, and the stability it offers, should stand it in good stead. And who knows: if Indonesia's government makes reforms that set that country onto a higher economic growth path, there could be plenty of opportunity for the financial industry in Singapore to seize a large piece of the pie.