Digging Deeper into the Panama Papers in Indonesia

The Panama Papers, with their revelation of 140 world politicians having offshore companies in 21 tax havens, have caused an uproar in Indonesia as they have exposed a number of influential people from Indonesia. The Panama Papers are a set of 11.5 million secret document obtained from the leak of Mossack Fonseca’s communication server.

The International Consortium of Investigative Journalist (ICIJ), which has previously published offshore leaks in 2013, is the actor behind the exposure of Panama Papers since 11 April. Tempo, an investigative media company in Indonesia and one of the members of the ICIJ consortium, has released the names of several Indonesian known figures that have offshore companies as exposed in the Panama Papers.

“Because this is raw data, the journalists use three main approaches to investigate: they look for public officials, people who have criminal cases in the past, and people who have tax cases in Panama Papers,” said Wahyu Dhyatmika, known as Komang, an investigative journalist with Tempo, during a PWYP Indonesia Knowledge Forum on 15 April.

Bawono Kristiaji, Partner of Tax Research and Training Services at Danny Darussalam Tax Center, explained that high tax for high individual network in 1920-1950s triggers the emerging of tax haven. While the purpose of high tax is for revenue redistribution.

The Panama Papers reveal is a concrete example of a highly growing secretive industry. The existence of secretive industry itself is due to the availability of supply and demand such as tax haven with low tariff tax, high secrecy security, easy to get permits for establishing company and no exchange information.

Panama Papers and Tax Amnesty

The attempts to avoid and evade the tax by high individual network in Panama Papers caused the Tax Justice Forum, a Civil Society Coalition of which PWYP Indonesia became a member, to urge the government to cancel a tax amnesty plan for wealthy people, explaining that this plan would be contra productive to tax revenue optimisation.
However, Aji has another point of view. The revelation from the Panama Papers is a simulation of the Automatic Exchange of Information (AEoI) that will be implemented by G20 countries in 2018.
“This is just a set of data from one law firm, what if all data was being disclosed? Tax amnesty is a bridge to prevent a tsunami of tax dispute,” said Aji.
He added that tax amnesty is not supposed to aim for short-term targets such as increasing tax revenue, but for longer term targets that aim to get the tax payers’ database. Tax amnesty policy also must be followed by institutional improvement and data management.

“It’s difficult to accept that wealthy individuals such as Riza Chalid, nicknamed the Oil Merchant and who avoids and evades tax, will be forgiven. What about differentiating the treatment. There’s a need to settle the crime of tax first,” said Wiko Saputra, Researcher of Economic Policy at PWYP Indonesia.

Other than tax amnesty policy options, we can promote mandatory disclosure from actors/companies and tax promoter. Tax evasion can easily be uncovered by matching the annual tax notification letter, while tax avoidance can be identified by transfer pricing analysis. Country by country reporting also can play key role to reduce tax avoidance.

This post was originally published on the PWYP Indonesia website.