JAKARTA: Indonesia and Hong Kong have agreed to share financial information that will give the Indonesian tax office access to data on taxpayers who have accounts in the wealth management hub, Indonesia’s finance ministry said on Friday.
The government of Southeast Asia’s biggest economy, which is eager to ramp up tax collection to narrow its budget deficit and fund infrastructure expansion, launched a tax amnesty scheme last year to bring back billions of dollars stashed abroad.
Hong Kong’s government has come under pressure after the so-called Panama Papers scandal last year, which showed that the Chinese territory was the most active center in the world for the creation of shell companies.
These shell companies have many legitimate purposes but can also be used to hide assets and evade taxes.
Indonesia’s Director-General of Taxes and Hong Kong’s Commissioner of Inland Revenue Department had signed a “Bilateral Competent Authority Agreement”, a statement issued by the Indonesian government said.
Indonesia will use the financial information obtained from Hong Kong to complement its tax database, “so hopefully this will encourage Indonesian taxpayers to voluntarily fulfill their tax obligations,” the statement said.
The move is in line with a global effort to boost tax transparency. An increasing number of countries have committed to the automatic exchange of information (AEOI) led by the Organisation for Economic Co-operation and Development.
Based on the result of Indonesia’s tax amnesty program, Hong Kong was the third-biggest source of repatriated funds at 16.31 trillion rupiah ($1.23 billion). Indonesians also declared 58.15 trillion rupiah worth of assets in the Asian financial center.
In 2014, Hong Kong stated its commitment to implement the AEOI on a reciprocal basis with “appropriate partners” and said it aims to start exchanging information by 2018.