Follow The Rules Or Open A Can Of Worms
It seems like only yesterday when Bali’s oracles gave their knee jerk reactions to the Indonesian government’s plan to introduce a Tax Amnesty.
“It’ll never work!” they cried because, of course, they know how everything works.
“It’s only going to help those tax avoiding criminal low lifes!” they argued, despite the fact they deliberately avoid paying tax themselves.
“Typically Indonesian waste of time!” they concluded in their holier-than-thou-head-up-their-own-a** space.
To be fair, this dismissive way of thinking wasn’t just limited to Bali’s oracles it was pretty widespread. Even the IMF had its doubts that Indonesia, tarred with the corrupt brush of a murky past, would be able to generate anywhere near what it was planning to.
So, is it working?
The Huffington Post recently posted an article that argued since the tax amnesty was introduced in July last year “more than 600,000 taxpayers have joined the scheme, generating US$8 billion from the first two phases of the program. The first phase, which ended in October last year, exceeded expectations by generating around US$7 billion or two-thirds of the revenue target. The second reporting period ended on December 31, 2016, and generated the much smaller amount of US$1 billion. Some 27,000 new taxpayers have registered since the roll-out of the program. And while it remains to be seen whether Indonesia will reach its tax amnesty target of US$12.4 billion by the end of the third phase in March, the success of the first phase prompted financial observers to hail it as one of the most successful in the world … the revenue that Indonesia has generated from it is significantly higher than similar programs that have been implemented in other countries, such as India, Greece, Germany, and Canada.”
There are always going to be those who see initiatives like Indonesia’s Tax Amnesty as a waste of time. No amount of arguing is going to change that, so rest assured the point of this blog isn’t to try and change your mind if your mind’s already made up.
The point is this: the Tax Amnesty programme is a way to introduce systems designed to increase revenues into government coffers; it’s part of a bigger international picture to share tax records across borders by the end of 2017; and it’s a big step forward to make people more accountable for paying their taxes.
That means everyone not just the mega rich with obscene amounts of money stashed abroad. It actually means you too!
How does this affect the Real Estate business in Bali?
The writing’s on the wall I’m afraid, and the message isn’t going to be welcomed by everyone.
You see, for years now, a ‘loophole in the law’ has allowed the unscrupulous to peddle the idea that foreign entities can own freehold land in Indonesia using a system that relies on local ‘nominees’. I use the word ‘own’ very loosely indeed here.
For those who don’t know, a ‘nominee’ can be anyone holding an Indonesian ID; neighhbour, colleague, domestic helper, secretary, driver … anyone.
They don’t have to have any relationship with a property or the landowner or a business. They don’t have to prove they have enough money to invest in anything, or for that matter any knowledge of what their name is being used for.
Here’s what happens:
1. Nominee enters into an agreement with a potential buyer or investor which basically says they have borrowed money from a foreigner (fiction)
2. and because they’re unable to repay said loan (more fiction) the foreigner can take the property or land or the business in lieu of the said loan.
3. Then the fictitious debt they supposedly had would be considered paid in full.
Many villas and plots of land were sold and many companies were set up this way. To be honest many still are.
I mean it all sounds pretty straight forward and harmless really.
But here’s the rub, which will impact all of these deals: the nominee’s name is still on the land certificates and the company documents and that same nominee could now be liable for tax.
Think about it. How do you begin to explain to a team of Taxmen and Taxwomen that the ‘nominee’ has no record of any funds having changed hands in the first place?
“Seriously??” they ask.
“Errm … yes, that’s what we did,” comes your timid response.
Cue the laughter!
OK, for the sake of argument, let’s say you managed to get false bank statements (Photoshop works great for that sort of thing), which ‘proved’ money had been transferred. You could do that right? Eventhough you know it’s not legal.
But even if you did the “nominee” would be even further up s@#t creek because now they’d be stuck with paying any and all taxes that were due.
If that all sounds like fiction from someone with an axe to grind, believe me it’s not.
Global Expat Recruiting quote Bisnis Bali and Bali Discovery as reporting that “the new tax program … poses a dilemma for Indonesians who have “lent their names” to foreign investors for property purchases who are urged under the amnesty to declare their assets and settle their outstanding tax obligations. But, in doing so, the Indonesian nominee might potentially trigger audits on the part of tax officials if the nominee’s reported income sources were deemed insufficient to finance the declared property assets … moreover, if a nominee declares his “ownership” of a property in Bali and the property is found to be in arrears on its taxes, problems may arise over settling the resulting tax obligations.”
The can of worms has well and truly been opened.
The Chairman of the Indonesian Chamber of Commerce for Bali (KADIN-Bali), A.A. Ngurah Alit Wiraputra warns “the Government has to be firm in dealing with nominee owners in Bali and notaries have to cooperate in this effort in order to safeguard the interest of the local people.”
If this sounds like the situation you find yourself in, what do you do?
There is a solution and we’d be more than happy to consult with you if you’d like some friendly and helpful advice.
You might, for example, want to consider converting the title of your land or property to a residential title called Hak Pakai or an HGB title which can be held by a PMA. Have a look at earlier blogs we’ve posted about owning property in Indonesia as a reference.
The bottom line is this: we think Indonesia is a safe place to invest. We know there are some extraordinary opportunities to be had. The economy and infrastructure are getting better. Credit ratings are improving. Investors are investing. The country is stable.
Don’t get me wrong, it’s not perfect (but where is?) and there’s still a lot of work to do. In order for this positive momentum to continue, Indonesia must comply with and support international standards and systems.
This means the same rules concerning taxes that apply all over the world, including an expatriate’s home turf, will be introduced here.
No amount of pleading ignorance and surprise and waving your hands in the air saying it just isn’t fair anymore is going to help. Wake up! The only reason it was fair before was because so many people were able to get away with blue murder.
Times are changing and we think it’s a good idea to get with the programme. All you have to do is follow the rules just as you’d be expected to follow the rules at home.
How simple is that?
Andy writes on a variety of topics related to property, real estate, the customer experience, mindset training and local/international trends for Seven Stones Indonesia. You can read some of his blogs here.
Seven Stones Indonesia is a property company headquartered in Bali, Indonesia, with a mission to help people who are interested in buying and selling residential and commercial real estate.
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