TAX amnesty programmes by countries have been in existence for years and the country that has had the biggest success in getting vast sums of money from its citizens and companies is Indonesia.
The country has had tax amnesty programmes in the past, but it was the one launched in 2016 that had the biggest success, as US$229bil was declared to tax authorities in the country.That amount of unreported assets was nearly three quarters of what the government intended to collect. The Indonesian government also collected US$1.4bil in amnesty penalties, which was 40% of the target.
Indonesia launched the tax amnesty programme to get back money that had been parked outside the country. Countries that have done so in the past have instituted tax amnesty policies to recoup lost tax revenues.
It was reported that according to a 2017 BNP Paribas Asset Management report, the programme by Indonesia raised tax revenues by 3.6% in 2016 and helped to fund infrastructure spending and keep the fiscal deficit within the statutory limit of 3% of gross domestic product (GDP).
Yustinus Prastowo from local policy think-tank Center for Indonesia Taxation Analysis is reported to have said that Indonesia’s tax amnesty programme was the most successful in the world at that time.
“This is quite an achievement, especially because we’ve been quite bad at managing our taxes before this,” Prastowo told the Jakarta Globe in a report.
There have been case studies on other tax amnesty programmes launched by other countries in the past and Australia in 2014 had its programme, which was successful in having individuals report billions of dollars in assets that was untaxed by the government.
It is said that countries in the past have implemented tax amnesty programmes, but with varying degrees of success. Those tax amnesty programmes were done with the objective of improving tax collection, lifting government revenue. Tracking down assets and cash parked overseas with the promise of immunity has been the hallmark of why these programmes have been successful, but not all tax amnesty programmes have worked.
Studies have shown that there could be a reluctance to declare assets parked overseas and in tax havens for the fear of repercussions to those who voluntarily do so. This is based on the fact that the thinking is that the tax authorities would scrutinise those declaring their assets.
In Indonesia’s case, the victory by Jokowi as its president lifted confidence in the government, leading to more voluntary declarations by previous tax evaders.
Public confidence in the government is a source that was tapped to give assurance to potential declarations in a tax amnesty programme. Similarly, Pakistan too, after the recent victory of Imran Khan as its prime minister, announced its own tax amnesty programme.
In Malaysia, the tax amnesty programme is not new but this time around, with the victory by a new government, the hope is that more will be willing to come forward and declare their assets.
“Similar programmes were previously implemented in 2015 and 2016. However, the rates offered during this budget appear more attractive compared to the previous programmes, which only offered a reduction of 10% to 20% from the original rates.
“Budget 2019 also puts in place penalties post the special voluntary disclosure period, which are far more punitive.
“Although this is a good move to encourage taxpayers to come forward, the punitive rates need to be applied with caution, as they should only be applied to taxpayers who have willfully or intentionally under-declared or have not declared taxes. Taxpayers who have adopted reasonable positions, which may not necessarily be agreed to by the tax authorities, should not fall under this category of ‘punitive’ rates,” said PwC Malaysia tax leader Jagdev Singh in a statement after Budget 2019 was proposed.
He said that given the slow take-up rate in previous programmes, it is necessary to urge identified “high-risk” taxpayers to come forward with a voluntary disclosure.
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