FDI from Tax Havens Amounts to IDR 120 Trillion

Shell companies in offshore tax havens are used not only to amass wealth and avoid tax, but also to run foreign investment activities in Indonesia.

According to the Investment Coordinating Board (BKPM), total foreign direct investment (FDI) in Indonesia in 2010-2015 was US$ 146.68 billion. Of that amount, as much as US$ 9 billion or around IDR 120 trillion came from companies registered in tax haven countries. “It's less than 10 percent (of total FDI). It's not that much really,” said the board’s chief Franky Sibarani after opening a talk show on ease of doing business at BKPM, Jakarta, Monday (11/4).

He said that eight tax haven countries are the source of foreign direct investment in Indonesia. They are Barbados, the British Virgin Islands, Luxembourg, Mauritius, Seychelles, Belize, Bermuda, and the Cayman Islands. “The majority came from the British Virgin Islands, followed by Mauritius,” he said.

The investment board has never questioned the source of funds of these foreign investors. The task of board is to ensure that investment flows into the country. “(We have) no issue with the source of funds, (the task of) BKPM is to attract (investors),” said Franky.

(Read: Government Offers Names in Panama Papers to Participate in Repatriation)

As reported earlier, the International Consortium of Investigative Journalists (ICIJ) published a document called the “Panama Papers” simultaneously from Monday last week. This is leaked data from Mossack Fonseca comprising 11.5 million documents containing a list of Fonseca's clients from various countries, including Indonesia, who have allegedly used tax havens to hide their wealth from the tax authorities in their respective countries.

Finance minister Bambang Brodjonegoro said that there are nearly 2,000 foreign companies that have paid no tax in the last 10 years because they claim that their companies make losses.

(Read: Tax Special Unit Investigates Thousands of Indonesian in Panama Papers)

However, an investigation by the Directorate General of Tax based on the calculation of the tax components concluded that these companies should be making a profit. Each owes an average IDR 25 billion a year in taxes, which means that the government has lost up to IDR 500 trillion in state revenue in ten years. "This tax dodging needs to be addressed,” said Bambang.

(Read: 6,000 Indonesian Rich Deposit Their Money in One Country)

According to Franky, one thing that the board can do is to encourage all foreign investors to apply for a taxpayer identification number before starting their investment activities to avoid potential loss of state revenue.

Foreign companies cannot avoid paying tax owed if they become taxpayers. The board has included the issue of taxpayer identification number in its three-hour licensing scheme, which came into effect this year. "As soon as they are registered (as taxpayers), the Directorate General of Tax can monitor them," said Franky.

Tax monitoring is the authority of the Directorate General of Tax. BKPM is where businesses can apply for licences, but monitoring tax paid by foreign companies is outside its remit.

BKPM will wait for more detailed reports from the Directorate General of Tax concerning foreign companies that have not paid taxes for years. "Because (our task is) to attract prospective investors and create new employment," he said.