Finance Minister Sri Mulyani, right, and Coordinating Economic Minister Darmin Nasution. (Antara Photo/Rivan Awal Lingga)

G20 Takeaway: Indonesia May Be Forced to Scrap Bank Secrecy Law


MARCH 26, 2017

Jakarta. Indonesia may be forced to release a government regulation in lieu of law, or Perppu, and scrap its bank secrecy law in May to join a list of countries participating in the Automatic Exchange of Information next year, Finance Minister Sri Mulyani Indrawati said on Wednesday (26/03).

"All the relevant laws [to implement AEOI] have to be completed by May this year. This means we have to scrap our bank secrecy law," Sri Mulyani said in Jakarta. The Perppu will be released to replace it and a number of other laws which are preventing exchange of information between Indonesia and other countries.

The minister had just come back from the G20 Finance Ministers and Central Bank Governors Meeting in Baden-Baden, Germany on March 17-18. In the meeting, the G20 member countries agreed they will fully implement AEOI — the new global standard on information exchange between nations — by September 2017, or September 2018 at the latest.

The G20, a global forum for governments and central bank governors from the world's 20 major economies, also agreed to implement the so-called Base Erosion and Profit Shifting (BEPS) with the same deadline projection. BEPS are tricks by companies to exploit weaknesses in a country's tax rules to avoid taxation, including downgrading profit figures, or stashing them in accounts that tax officials cannot touch.

Five existing laws in Indonesia — the Banking Law, the General Taxation System Law, the Sharia Banking Law, the  Capital Markets Law and the Microfinance Law — are currently preventing easy information exchange not just among financial institutions or government agencies, but also with the governments of other countries.

Consultant PriceWaterHouse Cooper explained in its "Common Reporting Standard" report about Indonesia that the exchange of information required by AEOI includes any "data or number in any format with written remarks that can be used  to clarify taxpayers’ income or assets."

"AEOI is a ground-breaking and highly progressive development relating to exchange of information between nations. The exchange of information by request approach or spontaneous approach is currently conducted on a case-per-case basis, which quantitatively and qualitatively limits the scope of information exchanged. AEOI enables tax authorities to automatically exchange information in an agreed format during certain periods, through arranged channels, with a one-time-only agreement," it also said.

The report added that the new global standard expands the scope of exchanged information "with relatively hassle-free bureaucratic procedures involved."

Minister Sri Mulyani said Indonesia must have laws that will allow access to taxpayers' data at the tax office to comply with AEOI.

"There must be a common system for reporting that must be agreed to by all to ensure a fair, balanced and responsible information exchange," she said.

The minister said Indonesia is already committed to revamp its domestic financial system to comply with the AEOI. A failure to do so will prevent the country from enjoying exchange of information that other countries take for granted.

She pointed out that the inability to exchange information had scuppered the government's effort to collect more revenue with its much-vaunted tax amnesty program.

"Only a third of assets we know exist were declared [by wealthy taxpayers] who stash their money overseas. As long as we can't access data on where these taxpayers place their funds overseas, then we will always have trouble enforcing tax compliance," she said.