Jakarta. The government plans to crack down on corporate tax avoidance via transfer pricing this year to try and recoup Rp 200 trillion ($15.6 billion) in lost state income, mainly in the commodities sector, the new head of the tax office said.

President Joko Widodo’s administration is planning to double its infrastructure spending this year to build ports, power plants and other projects, and the tax office figure for lost income would cover more than two-thirds of that spending.

As a proportion of gross domestic product, Indonesia has one of the lowest tax takes in the region, trailing behind Malaysia, Singapore, Thailand and the Philippines, according to the World Bank.

Sigit Priadi Pramudito, director general of taxes, said in an interview with Reuters late on Monday that many Indonesian firms, particularly those in the coal, palm oil, cocoa and other commodities sectors, were avoiding corporate taxes by using transfer pricing.

He declined to give names, but said some of them were major companies.

Under the transfer pricing method, an Indonesian company sells its goods to a subsidiary in another country below market prices, and the subsidiary in turn sells them to the market.

This effectively reduces a company’s profits in Indonesia and increases them in that foreign country.

“There’s a lot of potential in this area. We suspect that all along, they have been using the transfer pricing method,” Sigit said. “This year we will chase them.”

The tax office has the authority to adjust the tax bill of a company if it suspects that a sale to a related entity is under-priced.

In the past, it was difficult to prove that companies had under-priced their goods as the tax office lacked comparable data on market prices, Sigit said.

But it has collected more comprehensive data now and it is increasing its number of officers, the director general said.

He added that the tax office could take such companies to a tax court and that it had already won some of such cases.

Joko plans to add 4,000 taxmen per year to the country’s existing 36,000 to help achieve an ambitious tax revenue target of 1,489.3 trillion rupiah this year, up 30 percent from last year’s collection.

During his presidential campaign last year, Joko pledged to increase tax collection to 16 percent of GDP from about 12 percent, and the tax office is keen to close any loopholes.

The tax crackdown on the resources sector comes at a time when the prices of commodities have fallen to multi-year lows due to slowing global economic growth and ample supplies, setting the stage for a showdown with these companies.

Even so, many of them are still making big profits, Sigit said.

“The prices of commodities have dropped, but the costs are still cheap. The fact is, their profits are still tremendous, and using that method [transfer pricing] adds to the profits.”

Indonesian Finance Minister Bambang Brodjonegoro has said the country would review its tax treaties with several countries and may suspend those it concludes are being abused for tax avoidance.

Reuters