The Taxman Cometh: New Rule Puts Kibosh on Banking Secrecy


FEBRUARY 10, 2015

Jakarta. The tax office quietly issued a new regulation last week to link taxpayers’ tax identification number with their time deposits balance, bypassing Indonesia’s formidable banking secrecy, as it attempts to meet an ambitious tax revenue target this year.

The Finance Ministry’s tax office has been trying to gain access to Indonesian banks’ information for years in order to canvas new wealthy taxpayers or find clues that individuals under-reported their taxes.

Banks have previously thwarted these efforts, citing Indonesia’s traditional banking secrecy rules.

Starting in April, the tax directorate general will require lenders to list deductions for each customer, along with their name, address and tax identification number.

Banks presently deduct taxes on interest paid for customers’ time deposits on behalf of the tax office; lenders then report to the tax office the total amount they deducted on taxed interest, for all customers combined.

Since banks’ deposit interest rates are publicly available, the tax office will now be able to easily deduce how much a taxpayer has in their bank account, based on lenders’ reported deductions for taxed interest tax, and thereby verify their tax reports.

“This new regulation will make it a lot easier for the tax director general to track each customer’s tax report. This is, of course, positive,” said Darussalam, a tax expert at University of Indonesia, on Tuesday.

The government aims to rake in Rp 1.49 quadrillion ($117 billion) in tax revenue this year, an increase of 19 percent from 2014.

Finance Minister Bambang Brodjonegoro says the target requires “extra effort,” in light of the present slump in global commodity prices, which contribute the lion’s share of state tax revenues.

Indonesia’s tax-to-gross-domestic-product ratio now stands at around 12 percent, among the lowest in the region, compared with 12.9 percent in the Philippines and 16.1 percent in Malaysia according to World Bank data.

Former tax director general Ahmad Fuad Rahmany has said that the low tax ratio stems from the country’s overreliance on revenue in tradeable sectors such as palm oil and mining. With just over 30,000 tax officers, it’s impossible, Faud added, to pursue 50 million potential individual taxpayers for revenues owed.

But access to bank information should help eliminate that obstacle, Fuad said.

Under a 1998 banking law, Indonesian banks are barred from sharing customers’ financial information to other parties, except for taxation purposes, criminal investigation, civil cases and debt settlements.

The law does not enumerate the full scope of information or circumstances that apply to “taxation purposes.” But it does say Bank Indonesia, the country’s central bank — which at the time supervised banks before the Financial Services Authority (OJK) assumed that power in 2011 — can, upon request from the finance minister, compel banks to hand over “written proof and customers’ information” to the tax office.

The 1998 law also required the finance minister’s request letter to include the names of the customers in question and those of the tax officers who will collect the information.

Lenders argue that the law’s enumerated “taxation purposes” power only applies to ongoing tax office investigations.

“There has to be a reason or a [criminal or civil] case to make a bank obligated to share the customers’ data,” said Sigit Pramono, the chairman of the Indonesian Banking Association (Perbanas). “In the [banking law], every single customer information is kept secret. Nobody wants anybody to know how much money they have; it’s about privacy. Are tax officers happy if their neighbors know the amount of money in their account?”

Sigit also expressed concern that the tax offices lacks internal security controls sufficient to guard customers’ information, citing a 2013 case in which President Susilo Bambang Yudhoyono’s tax report, which is supposed to be private, leaked to press.

A 2013 OJK circular defines “individual customer information” that bank must keep secret as including name, home address, mother’s maiden name, phone numbers and birth date.

Wahyu K. Tumakaka, an interim director in the tax office, dismissed the concern.

“If a person is scared, then he might not be a good taxpayer. If they have good intentions, what are they afraid of?” Wahyu said.