Drones target tax cheats in Indonesia's palm oil plantations

[SINGAPORE] The tax drone cometh.

Above the vast forests of oil-palm and rubber trees in Sumatra and the scattered tin mines on islands to its east, the Indonesian government is flying unmanned aircraft to catch cheats who under report the size of their plantations or the extent of their mineral extraction.

"Mines and plantations make good profits just taking stuff from nature," said Samon Jaya, head of the tax office in South Sumatra and Bangka-Belitung islands. "But they don't pay enough tax. This has to stop."

For Indonesia's cash-strapped government, policing revenue across a chain of 17,000 islands that would stretch from New York to Alaska is no easy task. Remote areas on the islands of Sumatra and Borneo, where most of the palm oil trees are grown, are difficult to access and the government can't afford a dedicated satellite or helicopters.

Out of a population of 250 million, only about 900,000 Indonesians submitted a tax return last year, and the country's tax-to-gross domestic product ratio of about 11 percent is below the Asia-Pacific region's average.

Mr Samon says the mines and plantations in his jurisdiction only pay about 30 per cent of the tax they should. The industries, along with the rest of agriculture, forestry and fisheries, account for about a quarter of the nation's nominal GDP.

President Joko "Jokowi" Widodo wants to plug such leaks to help fund a more-than US$400 billion infrastructure programme.

Since he took office in October, Mr Joko has offered to exempt citizens from penalties if they settle unpaid taxes. He's also raised pay for collectors.

For planters and miners who choose not to pay what they should, watch out for a shadow in the sky.

FOOTBALL FIELD

In a football field in the village of Sembawa, 30km from South Sumatra's main town of Palembang, school children chatter excitedly as tax inspector Bambang Wijono launches a Chinese-made craft with a 2m wingspan into the air. The unmanned plane heads off over a neighbouring rubber plantation, mapping about 700 ha in an hour in a pre-programmed flight.

"We need to watch over very wide areas," said Mr Bambang, a model aircraft enthusiast, and leader of the drone unit. "Up to now, our data has been very limited and we can't use satellite images."

The aerial spy takes photos every five seconds that are computed into a map. Unlike the satellite images available to the government, which are often obscured by clouds or not detailed enough, the drone images show the exact extent of the plantations and can see whether the trees are old enough to bear fruit.

The data is then compared with tax returns submitted by smallholders and companies.

FALLING PRICES

Alex Edy, head of the South Sumatra branch of the Indonesian rubber association, says the low tax revenue from his members could be explained by a slump in prices, and not because of underpayment.

"We pay all our tax," he said. "Prices of rubber and palm oil are dropping. Maybe that's why tax revenues are dropping also." Prices of crude palm oil traded in Malaysia have fallen about 14 per cent since the start of 2014.

Mr Joko's government targets 1,294 trillion rupiah (S$132 billion) of tax this year, about 30 per cent more than the actual collection in 2014, according to its revised budget released last quarter. That's ambitious in an economy growing at its slowest rate since the aftermath of the global financial crisis in 2009.

Good Intentions

"The intention is good, but it's going to be tough to achieve in a single year," said Reza Siregar, an economist for Goldman Sachs Group Inc in Singapore. "Maybe they will get 15 per cent increase on last year, which is still an improvement."

The government says the key to increasing revenue is to widen the base of taxpayers rather than trying to raise more from those already registered. It is considering a tax amnesty to encourage Indonesians with money overseas to repatriate the funds, according to Coordinating Minister for Economic Affairs Sofyan Djalil.

The renewed emphasis on tax collection will mean little without successful efforts by Mr Joko to clean up graft, said Aaron Connelly, a research fellow in the East Asia programme at the Lowy Institute for International Policy.

FIRST STEP

"Until he can fix the corruption problem in the tax office and then boost Indonesians' confidence that when they pay taxes it is going to the right places, it's not going to make much of a difference," he said in a Bloomberg Television interview.

By turning to drones, the tax office is using a technology that some planters already use to track their estates and identify trees that need water or nutrients.

"Previously you would have to fly maybe a light airplane or a helicopter," said Mark Yong, CEO of Garuda Robotics, a Singapore company that provides drone services to industries and plantations. "You can send a drone over a specific area. It's a lot more precise."

That works for the tax man too. The drone programme, which began in April, has already claimed one scalp: an oil palm planter who coughed up 250 million rupiah in taxes, said Mr Samon.

"This is a first step," said Mr Samon. "Just wait for the next."

BLOOMBERG