Govt. Expedites Revision of Certain Laws Relating to the Implementation of AEOI Standards

Indonesian Version

Marcell Sihombing, Fathan Qorib/ANT
 

 

During his keynote address at the second session of the 11^th G20 Summit at China’s Hangzhou International Expo Center last Monday, President Joko Widodo reemphasized Indonesia’s commitment to implementing the new global standard on the Automatic Exchange of Information (AEOI) for taxation purposes. President Widodo believes that the implementation of this system will ultimately increase the state income of developing countries, despite the current global economic slowdown.
 
Through this system, tax authorities from countries which are implementing the AEOI system are allowed to exchange information relating to taxpayers’ financial accounts. In other words, the AEOI system will entitle tax authorities from any country to receive immediate notification whenever one of its citizens opens a financial account in a different country.
 
The implementation of such a system will also allow the Directorate General of Tax at the Ministry of Finance (DJP Kemenkeu) to prevent harmful transfer-pricing practices. Through such practices, taxpayers manipulate and evade their tax obligations by creating the illusion that the profit margins which are generated through their various business transactions are lower than they actually are. As a result of this, any taxpayers who engage in this practice are liable to pay far less tax than they actually should.
 
According to President Widodo, international cooperation regarding the implementation of the AEOI system should eventually lead to the eradication of tax-evasion practices and in turn encourage the establishment of suitable taxation policies among G20 member countries. Where Indonesia is concerned, President Widodo recently stated his intention to help improve the country's economic outlook by reforming the tax system, while also providing appealing tax incentives for investors so as to prevent any instances of double-taxation occurring.
 
President Widodo also highlighted Indonesia's recently introduced tax-amnesty policy as a concrete example of the current government’s commitment to reforming the country’s taxation system. Moreover, President Widodo also suggested that G20 member countries should cooperate more closely with each other in regard to eradicating corruption, with Indonesia offering a good example of the importance of remaining constantly active in the fight against graft.

“If this period of tax-system reformation turns out to be a success, then other countries should also consider implementing this method. However, if it turns out to be a failure, then this will ultimately affect both G20 member countries and non-member countries alike,” President Widodo concluded.

With both of these possibilities in mind, President Widodo ultimately reminded all G20 member countries to only establish policies which will ultimately prove harmless to other member countries.
 
Preparations for the Implementation of AEOI Standards
 
The government of Indonesia has already begun preparations for the implementation of the AEOI standards, specifically by planning to revise several provisions on the confidentiality principle, as set out under Law No. 10 of 1998 on the Amendment to Law No. 7 of 1992 on Banking (Banking Law), as well as several provisions on income-tax tariffs, as set out under Law No. 28 of 2007 on General Provisions and Procedures for Taxation (Taxation Law). These two legislative instruments were once described as an obstacle to the implementation of the AEOI standards by the Former Minister of Finance, Bambang Brodjonegoro.
 
By way of example, Article 40 (1) of the Banking Law stipulates that banks must guarantee the confidentiality of their customers’ data, including that of any deposited funds. In spite of the fact that this confidentiality principle can be waived in certain cases, such as for the purposes of taxation and during court proceedings, its continued application may still ultimately obstruct the implementation of the AEOI standards.
 
Sharing Mr. Brodjonegoro’s view, Soepriyanto, the Vice Chairman of Commission XI at the House of Representatives (House) revealed that various confidentiality provisions were currently in the pipeline as regards the revision of the country’s Banking Law, a process which is slated to get underway by 2018 at the latest. Moreover, Mr. Soepriyatno also pointed to the need to revise several other provisions, as set out under Law No. 36 of 2008 on the Fourth Amendment to Law No. 7 of 1983 on Income Tax, and Law No. 42 of 2009on the Third Amendment to Law No. 8 of 1983 on the Luxury-Goods Sales Tax.
 
Mr. Soepriyatno further explained that the government is expected to complete the revisions before the new standards are brought in, so as to ensure an optimum implementation of the AEOI standards. However, Mr. Soeprayitno also reminded the public that such revisions required lengthy discussions between lawmakers and the relevant stakeholders. Moreover, Mr. Soepriyatno emphasized the importance of input from stakeholders as regards the revision of the aforementioned laws.
 
In the larger scheme of things, Mr. Soepriyanto supports President Widodo’s view that the implementation of the AEOI standards heavily relates to the roles which are played by other countries. According to Mr. Soepriyanto, the AEOI standards are founded upon a principle of reciprocity. This means that Indonesia’s banking industry must be ready to disclose information relating to their customers if they are requested to do so by another country which is also implementing the AEOI standards.
 
Commenting on this issue, Aslan Lubis, Deputy Director of Crisis Management and Oversight Development at the Financial Services Authority (OJK), expressed his disagreement with attempts to dispense with the confidentiality principle. According to Mr. Lubis, this particular principle was initially adopted by Indonesia’s banking industry with reference to international best practices, whereby no bank has ever voluntarily disclosed any confidential information. Should any revision end up completely revoking the confidentiality principle, then Mr. Lubis worries that the general public will no longer be able to trust their banks when they make deposits.
 
It should be noted, however, that the confidentiality principle can currently be waived, but only in certain circumstances, such as for taxation purposes, during criminal proceedings or for the settlement of any bank obligations which are delegated to the State Auction and Receivables Affairs Agency. On this point, Mr. Lubis further affirmed that there are indeed times when banking information can be publicly disclosed, and this includes information relating to the general growth of the banking sector. However, Mr. Lubis concluded by stating that no private individual’s  information had previously been disclosed to the public.

(cd/sp)