December 31, 2017 can be the end of year that is either long-awaited or (perhaps) avoided by tax players in Indonesia. It is awaited as it can be a turning point to make a better tax resolution and policy in 2018. And it is avoided (perhaps) as it is the Government’s tolerance limit to the taxpayers’ non-compliance, signifying that there will be firm action against any forms of tax violation next year.
Moreover, the Government has issued Minister of Finance (MoF) Regulation Number 165 Year 2017, which amended MoF Regulation Number 118 Year 2017 on the Implementation of Law Number 11 Year 2016 concerning Tax Amnesty. The regulation makes it easier for the taxpayers to fulfil its tax obligation, particularly regarding the tax amnesty program.
There are two significant points of amendment to the MoF issued and effective on November 17, 2017. The first is the simplification of title transfer process for assets in the form of land and/or building disclosed in Asset Declaration Letter, from the nominee to the actual owner, in this case is the tax amnesty applicant.
The second is the last chance for taxpayers to declare their undisclosed assets through tax amnesty or Annual Income Tax Return without being subject to administrative sanction.
Transfer of Rights
In regards to the transfer of rights on assets, the Government renders an Income Tax exemption facility for tax amnesty applicants conducting title transfer upon land and/or building reported in Asset Declaration Letter. The requirement is that the title transfer process shall be applied to the Official Certifier/Registrar of Title Deeds (Pejabat Pembuat Akta Tanah/PPAT) no longer than December 31, 2017.
In the previous regulations (MoF Regulation Number 118 Year 2017), the application of title transfer upon land and/or building to PPAT should be enclosed with Exemption Certificate of Income Tax. In other words, taxpayers should own Exemption Certificate from the Directorate General of Taxes (DGT), with a set of requirements to be met.
As the due date for the title transfer application is getting closer and the fulfilment of Exemption Certificate requirement is not quick, the Government through MoF Regulation Number 165 Year 2017 provides easier alternative for the taxpayers to obtain Income Tax exemption facility by merely attaching copy of Tax Amnesty Certificate in the title transfer application documents to PPAT, as regulated under Article 24 paragraph 4.
Other regulations added on the new MoF Regulations concern the assets that may and may not obtain Income Tax exemption facility. Title transfer upon land and/or building that may obtain Income Tax exemption covers the assets whose legal documents are still under the name of agent or nominee; grantor; heir, and/or one of the heirs if the land and building legacy has been bequeathed.
In contrast, Income Tax exemption facility is forbidden for land and/or building whose ownership is a result of buy-and-sell transaction between taxpayers and developers and/or whose title is not yet transferred from the developers to the taxpayers.
For instance, company A owns assets in the form of land and building amounting to IDR1 billion, in which the ownership status is still under another party’s name. If the asset title is successfully transferred before the end of December and declared pursuant to the tax amnesty procedure, company A as a corporate taxpayers will be exempted from final Income Tax principal upon the conveyance of land and/or building.
Whereas, upon failure in following the title transfer procedure as required in the tax amnesty program, conveyance of land and building of company A will be subject to final Income Tax of 2.5% from the asset value or equal to IDR25 million.
Meanwhile, for the second point, i.e. the declaration of unreported net assets in Asset Declaration Letter and/or Tax Return, the Government promises an exemption from administrative sanction for taxpayers declaring their assets by submitting Periodic Final Income Tax Return. The disclosure shall also be performed before the end of December.
The point is that the taxpayers declaring assets that have not been fully disclosed in the Tax Return or the Asset Declaration Certificate for tax amnesty program will not be imposed by any penalty. It is under a circumstance that the DGT has not conducted any audit on the assets.
The assets will then be considered as income for FY 2016 and subject to Income Tax with final rate as regulated under Government Regulation Number 36 Year 2017 as follows:
Income Tax Rate
Calculation formula for Income Tax that shall be paid is by multiplying net assets that will be declared with the final rate in accordance with the types of taxpayers. Furthermore, the determination of asset value will be expressed based on the types of assets that will be declared.
There are several asset categories determined by this MoF Regulation, namely: cash and cash equivalent, land and building, vehicle, and shares traded in Indonesia Stock Exchange, as well as other assets. Meanwhile, the determination of the value is conducted by public appraiser or the DGT.
In the event of Periodic Final Income Tax Return submission, the taxpayers shall attach several supporting documents, as follows:
- Payment slip of Final Income Tax on net assets; and
- List of Net Asset Details considered as income that becomes the calculation base.
As an illustration, company A successfully declares all of its assets in the amount of IDR1 billion through the tax amnesty program. Thus, company A shall only need to pay small amount of redemption and is exempted from criminal sanction and tax penalty.
On the other hand, for instance, company B as the affiliated party of company A fails to declare all of its net assets timely as it exceeds December 31, 2017. Under the assumption that the undisclosed net asset is of IDR1 billion, company B shall prepare for the consequence by paying Income Tax arrears plus penalty up to 200% from unpaid tax.
Or, another example, company C is a Corporate Taxpayer not utilizing tax amnesty program. Under the assumption that its undisclosed net asset in Tax Return is of IDR1 billion, company C is subject to administrative sanction of 2% per month for maximum of 24 months if that the asset is discovered by the tax authority.
Under the issuance of MoF Number 165, company B and C are not subject to any administrative penalty or sanction. They just need to disclose their assets through Income Tax Return and pay the final tax rate of 25% from the net asset value, or equal to IDR250 million.
The end of tax amnesty program and the beginning of financial information openness era under Automatic Exchange of Information (AEoI) will be a new chapter for Indonesian taxation to become more transparent and fair, while remain strict.
Hence, the policy in MoF Regulation Number 165 Year 2017 is a good news that should be immediately and wisely responded by taxpayers, as its utilization period almost ends. Moreover, the Government has affirmed many times that after this policy, they will no longer be soft to taxpayers’ non-compliance and there will be no more tax amnesty program in the future. So, what are you waiting for?