Indonesia introduced the tax amnesty from 1 June this year to encourage wealthy Indonesians to declare their wealth and to repatriate funds 'undeclared' overseas. With Indonesian undeclared money accounting for an estimated US$200 billion of Singapore's $470 billion assets under management in private banks, the impact could have been considerable.
Under the programme, companies and individuals are encouraged to give details of previously undeclared assets and pay 'redemption money' in lieu of tax and any sanctions on overdue payments. Redemption money ranges from 2% to 10% of the assets, depending on when it is declared, and whether the money is being repatriated to Indonesia.
Assets returned must be kept in Indonesia for three years, in funds managed by appointed banks or invested in property. The government has been encouraging the latter, to keep money in the country longer term.
Indonesian president Joko Widodo had hoped to see around $76bn returned from overseas through the amnesty. With an overall target of $300bn in declared assets, the government would also have raised $12.4bn in redemption money.
However, early indications suggest that the actual return from the amnesty will not be as high as hoped. On 22 August finance minister Sri Mulyani said the tax amnesty assets declaration amounts to $3.4bn, of which $437 million was from overseas. The assets declaration from Singapore was $361m, with $81.8m repatriated.
It is too early to tell exactly what the figures will be, especially by the end of September 2016 when the deadline for preferential redemption money rate of 2% and 4% will end. From October to December the rate will increase to 3% and 6%.
The lower than expected response may also be partly due to some uncertainties under Indonesian law, which has left some investors worried about criminal liability if they declare all of their assets. Once this is clarified, we are likely to see more people taking advantage of the amnesty.
Many members of the public, and indeed the tax amnesty officials, may not fully understand the tax amnesty law and its implementation. The programme is not only a concern for the richest Indonesians but also the public in general, and reports have suggested that there have been a lot of unanswered calls to the short-staffed amnesty call centre.
It will take some time for high net worth individuals to plan and restructure their assets and we may see the impact later as they do so.
Nevertheless, the private banking industry in Singapore is currently feeling relieved and warily optimistic.
Singapore-based Valerie Wu is a tax expert with Pinsent Masons, the law firm behind Out-Law.com.