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Tax amnesty to cleanse Indonesia underground economy, Riady says

Wednesday, October 5, 2016 - 10:04

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Indonesia's tax amnesty will potentially help clean up the "underground" economy as people build more trust in the government, said billionaire Mochtar Riady, chairman of Lippo Group.

[SINGAPORE] Indonesia's tax amnesty will potentially help clean up the "underground" economy as people build more trust in the government, said billionaire Mochtar Riady, chairman of Lippo Group.

"The uncertainty in politics and the economy led to a big underground economy," Mr Riady, 87, said in a Bloomberg Television interview in Singapore. "Indonesia is very lucky to have Jokowi, who made an important decision. Our tax base will be increased so much and the government will have substantial tax income."

President Joko Widodo has staked his credibility on an ambitious tax amnesty plan aimed at repatriating Indonesian cash stashed overseas, while giving evaders a way to come clean. He ordered his cabinet to summon the biggest taxpayers, especially those with assets held overseas, to ensure they participate.

Since the amnesty began in July, the finance ministry has collected 97.2 trillion rupiah (S$10.2 billion) from the program, or 59 per cent of a targeted 165 trillion rupiah.

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Under the plan, Indonesians pay a tax rate starting at 4 per cent on declared property or funds left overseas. The level increases in stages to 10 per cent as the amnesty period draws to a close in March. Those who send their money home and keep it in Indonesia for at least three years pay 2 per cent and are offered a wide range of possible investments. Those who don't declare and are found out face paying 200 per cent of the tax owed.

Mr Riady's son James, who is the deputy chairman of Lippo Group, and his son-in-law Tahir, the founder of PT Bank Mayapada International, are taking part in the plan.

Lippo may also consider moving its Singapore-listed real estate investment trusts to Indonesia if tax incentives are made as attractive as Singapore, Mr Riady said.

The group has two property trusts listed in the island state - First Real Estate Investment Trust, which owns Indonesian hospitals, and Lippo Malls Indonesia Retail Trust, which holds shopping centres.

The trusts' relocation depends on a government ruling on further lowering the final income tax for Reits. Indonesia in March cut the rate for transferring assets into real-estate investment trusts to as little as 0.5 per cent from 5 per cent to become more competitive against neighbouring countries.

The government may cut the rate to zero and scrap property transfer fees to invest funds repatriated from the tax amnesty program into Reits, Coordinating Minister for Economic Affairs Darmin Nasution said in July.

"If the Indonesian tax laws change, then I think it will give an opportunity to property developers to list their assets here," Mr Riady said. "Then it would make sense to list our Indonesian assets in Indonesia and the Singapore assets in Singapore."

Mr Riady was in Singapore to launch the English version of his autobiography Mochtar Riady: My Life Story.

Born in 1929 in Indonesia to immigrant Chinese parents, Mr Riady grew up to become one of the nation's wealthiest businessmen. Lippo Group, which he founded in the 1950s, has grown to span food, property, telecommunication, banking and healthcare across South-east Asia.

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