Indonesia considers onshore financial center after tax amnesty

Indonesia Finance Minister Bambang Brodjonegoro attends a Reuters interview in Jakarta, Indonesia, May 19, 2016. REUTERS/Beawiharta

JAKARTA (Reuters) - Indonesia is considering forming a special region that will serve as an onshore financial center in which domestic firms can create shell companies without having to go to tax haven countries, its finance minister said late on Wednesday.

Southeast Asia’s largest economy is in the early stages of overhauling its tax system. It has announced many plans that the government hopes will get more people to pay taxes and empower the tax authority, including a proposed tax amnesty.

Currently, only 27 million people of the 250 million population are registered taxpayers and around a million people filed tax reports.

Finance Minister Bambang Brodjonegoro told reporters that after the tax amnesty program ends, the region under consideration will allow Indonesian firms investing abroad to get lower tax rates and easier rules to open a financial company that would serve them as a special purpose vehicle (SPV).

The country’s tax office has found at least 2,000 SPVs set up by Indonesians and 6,000 saving accounts in many tax haven countries, Brodjonegoro had said previously.

“We want our companies with offshore business to have their headquarters here, not in tax havens in other parts of the world, like Panama or Mauritius,” he said, adding that the low tax rates would not apply to firms with onshore business.

The government has proposed to parliament to offer tax amnesty starting from July until the end of the year and has projected 165 trillion rupiah ($12.44 billion) of additional income from the program.

Under the scheme, the government will offer low rates for taxpayers who declare untaxed assets at home and abroad in order to broaden the country’s tax base.

Brodjonegoro said parliament was close to reaching a decision on a bill backing the amnesty plan and may vote upon the bill before it goes into recess next week.

Reporting by Gayatri Suroyo and Hidayat Setiaji; Editing by Jacqueline Wong