Indonesia considers building a tax haven

Indonesia is currently considering options for setting up tax-haven jurisdictions as it tries to attract investors through the country’s amnesty program, reports Bloomberg.

Indonesia needs money to fund its various infrastructure projects and also to finance the widening budget deficit, according to Coordinating Maritime Minister Luhut Panjaitan.

Both Indonesian and foreign businesses would be able to set up shell companies on islands located approx. 60km from Singapore.

The central bank has said the tax amnesty program could attract approximately $43 billion of funds stashed overseas. It could also encourage greater participation and help President Widodo plug a shortfall in tax revenue, as Indonesia faces the repercussions of a slowdown in China as well as low commodity prices.

However, the plan is still in its early stages.

Both Indonesian and foreign businesses would be able to set up shell companies in Bintan and Rempang, and enjoy lower tax rates. Both islands are located around 60km from Singapore.

The expectation that the amnesty will draw funds into the country appears to be putting upward pressure on the rupiah, domestic asset prices and demand,” said Edward Teather, Senior Economist at UBS Group in Singapore.

This initiative will also put Indonesia as a direct rival to Singapore, as it would prevent taxpayers from keeping their assets offshore in Singapore.

A version of this appeared on Bloomberg on August 14. Read the full version here

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