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Economy

Indonesian parliament OKs tax data exchange law

Government lauds new weapon in fight against evaders

JAKARTA -- Indonesia took a big step toward joining a global framework aimed at combating tax evasion, with the country's parliament on Thursday passing a law that grants the tax office direct access to financial information held by banks and other institutions.

Passage of the legislation makes permanent a temporary regulation issued by the government in May. It gives Indonesia stronger legal grounds to meet the requirements of the automatic exchange of information, framework developed by the Organization for Economic Cooperation and Development. AEOI allows the reciprocal exchange of tax data between countries.

"With the passage of the [temporary regulation] into law, the room for taxpayers to engage in cross-border tax avoidance or evasion can be minimized. We can tackle them," Finance Minister Sri Mulyani Indrawati told local reporters after a lower house session on Thursday.

Under the new law, the directorate general of taxation no longer has to seek permission from the Financial Services Authority to access information held by financial institutions -- such as banks, stock brokerages and insurers -- for purposes of tax enforcement.

The institutions are also obliged to submit regular reports to the tax office regarding customers who have assets whose value exceeds a set minimum, in line with AEOI standards. Information on foreign account holders will enable Indonesia to exchange data with other jurisdictions taking part in the AEOI system.

Violators of the new law face up to one year in jail or a fine of 1 billion rupiah ($75,190).

Indonesia will begin implementing the AEOI next year. Cross-border tax avoidance and evasion are seen as partially responsible for the country's poor tax collection rate. The latest report by the OECD says Indonesia's tax revenue stood at just 11.8% of gross domestic product in 2015, lower than many of its Southeast Asian neighbors and significantly below the OECD average of 34%. 

A nine-month tax amnesty concluded in March uncovered 4,866 trillion rupiah ($365 billion) in hidden assets, equal to nearly 40% of Indonesia's GDP.

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