An accountancy firm warns that uncertainties remain on how the Asian country's tax amnesty programme, which is expected to become law soon, will operate in practice.

The holding period for a proposed Indonesian tax amnesty has been thrown up into the air as a result of comments from the country’s finance minister, according to a note from accountancy firm Rawlinson Hunter.

The Indonesian government has, according to various media reports, won support from lawmakers in the country. Dr Bambang Brodjonegoro, finance minister, has indicated that talks about the legislation will be completed no later than the middle of June, which would suggest that the tax amnesty programme kicks in by early July, Rawlinson Hunter said.

Indonesia, along with a number of other jurisdictions, has pushed for an amnesty programme to bring back undisclosed offshore assets. Indonesia remains one of the most important sources of offshore wealth held in hubs such as Singapore, as mentioned this week by Boston Consulting Group in its annual survey of the global wealth industry.

Earlier this year, a report on Indonesia, noting that the country's wealth management industry is small (only about $20 billion in assets under management compared with $1.8 trillion in Singapore), said it has potential to grow if a significant amount of offshore wealth returns home. Lawyers have told this publication in recent years that Indonesian-sourced wealth is an important revenue earner for Singapore private banks because individuals have traditionally been so distrustful of Indonesian authorities – and fearful for their financial privacy - that they have preferred to take the risk of putting money offshore. Such fears may deter some people from declaring offshore assets.

Indonesia will be applying the Common Reporting Standard, a global system of disclosure of accounts and data transfer, from 2018.

Holding periods
Indonesia’s tax authority has said the “holding period” will be valid for one year, split into three periods with different proposed redemption tariffs without asset repatriation to Indonesia. For the period of July-September 2016, the tariff is 2 per cent; for October-December 2016, it is 4 per cent, and for January-June 2017, it is 6 per cent. With asset repatriation, however, the tariffs are proposed to be 1 per cent, 2 per cent and 3 per cent, respectively.

Rawlinson Hunter said the finance minister has said the amnesty will only be in force until the end of next year, which creates confusion about what will happen.

There are several outstanding issues to be handled, the firm said: tax reform should occur simultaneously with the tax amnesty; redemption tariffs are too low and it is unclear if data taken in the amnesty will be used in other criminal investigations. Explaining its concerns about tariffs, Rawlinson Hunter said tariffs can create a sense of injustice and raise the risk that the Indonesian government will miss out on significant revenue.