JAKARTA (Reuters) - Competition is so tough among Indonesia’s wealth managers that one offers clients helicopter rides to soar above Jakarta’s notorious traffic jams, others provide golf clinics, airport limousines and exclusive money-managing seminars.
Now, business may be about to look up for the industry helped by President Joko Widodo’s tax amnesty plan that could encourage rich Indonesians to declare assets previously concealed from the authorities, either at home or abroad.
The scheme will offer the well-heeled incentives to bring money back to the country but it won’t require taxpayers to repatriate their assets, which means a flood of funds from abroad is unlikely.
Still, bankers are hoping it could be a timely shot in the arm for the industry that, still in its infancy and dwarfed by neighboring Singapore, was heading into even rougher waters as the economy slowed and the assets of its tycoons shrank with it.
“The tax amnesty will have a positive impact on the wealth-management business,” said Anggoro Eko Cahyo, director of consumer banking at Bank Negara Indonesia, whose “Emerald Priority” members are wafted by helicopter across the capital when they are in an emergency.
“We will proactively approach individuals, be they our existing customers or prospective customers,” Cahyo said.
Indonesia joins India, among other countries, that have rolled out tax amnesty schemes to recover revenue and plug deficits. With tax receipts tumbling, from slumping oil and commodities prices, and the budget deficit starting to test a legal limit of 3 percent of gross domestic product, Widodo is offering generous incentives to tax evaders to step forward.
Those who come forward during the program will also escape criminal prosecution.
People who disclose their wealth in the first month of the amnesty will be taxed at just 1 percent, said Luhut Pandjaitan, Widodo’s chief legal minister.
Previously, the government said that taxpayers disclosing their wealth in the first three months would be taxed at 2 percent, rising to 4 percent the following three months and up to 6 percent by the end of 2016, when the program ends.
That compares with the top tax rate for individual income of 30 percent and the corporate rate of 25 percent.
Parliament will begin debating the draft law in coming weeks.
Local bankers such as Citi Indonesia’s head of wealth management Ivan Jaya accept that they will have to raise their game to take full advantage of the amnesty.
“There must be investment instruments like those provided now by offshore financial institutions,” he said.
Indonesia’s wealth management industry is small, with only about $20 billion in assets under management compared with $1.8 trillion in Singapore, the favored destination for Indonesians moving money offshore, according to the Economist Intelligence Unit.
Some $200 billion in Indonesian money is thought to be stashed in Singapore, and wealth managers there are anxious Indonesia’s amnesty will lead to an outflow of assets.
Taxation revenue comprises about 10 percent of the Indonesian economy, compared with 13-15 percent in Southeast Asia’s four other main economies.
Analysts say significant revenue has been lost through tax evasion since the overthrow of late strongman Suharto in 1998.
The finance ministry estimates amnesty will boost tax receipts by 60 trillion rupiah ($4.40 billion) this year. Citi’s Jaya said that assuming a tax rate of 1-6 percent, it implies officials expect up to 6,000 trillion rupiah to be declared.
“Our money abroad is not just a little, but a lot, an extraordinarily large amount,” Finance Minister Bambang Brodjonegoro told reporters last week.
Even if little wealth is repatriated, the government hopes to expand its base of taxpayers. Only 10 million Indonesians now file an annual tax return, out of a population of 250 million.
But not all wealth managers are convinced about a windfall.
“It’s not yet clear that banks will get a share of this,” said Jahja Setiaatmadja, the president director of Bank Central Asia. “This tax amnesty does not require funds to be repatriated, it’s just that it gives an incentive ... and the money may have to go to government bonds.”
Additional reporting by Hidayat Setiaji and Cindy Silviana; Writing by Nicholas Owen; Editing by John Chalmers and Jacqueline Wong