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Illicit activities versus Tax January 17, 2012

Posted by maskokilima in Sekolah, Tax.
Tags: , , , , , , , , ,

Cooperation of Law Enforcement Agencies and Restriction of Cash Payment:

When you want to tax illicit activities

In the beginning of 2008, the tax administrations around the world had attracted to the new story from Liechtenstein (O’Donnell 2011). They paid careful attention to the information received by German government that there was a multi-billion-tax-evasion scandal involving its citizens hiding their assets in Liechtenstein Bank (O’Donnell 2011). Those assets were suspected from illicit financial activity. By the end of 2008 tax administration from OECD Forum on Tax Administration began working together concerning the Liechtenstein Bank (O’Donnell 2011).

The World Bank’s Stolen Asset Recovery (StAR) initiative has endorsed estimates that illicit financial flows across borders add up to $1-1.6 trillion per year, about half from developing and transitional economies (The World Bank 2007). In Indonesia, it is estimated that 0.6% to 1.3% of average nominal GDP is stolen (The World Bank 2007). We can imagine if Indonesian Tax Authority could tax those stolen asset.

Indonesian tax regulation states that all kinds of revenues including revenues from illicit financial activities are subject to tax. However, it is almost impossible to the proceeds of illicit financial activities due to several issues. Firstly, it is always difficult by Directorate General of Taxation (DGT) to proof that someone gained proceeds from illicit financial activities without information from other authority. Indonesia has enacted Anti Money Laundering regulation, but not all suspicious financial activities are forwarded by Indonesian Financial Transaction Reports and Analysis Centre (INTRAC) to DGT. For example in 2006 there were 430 reports submitted to enforcement agencies by INTRAC (Embassy of Indonesia 2007) but none of them received by DGT. In 2010 DGT only investigated 67 taxpayers due to tax fraud which is only 25 of them related to illicit financial activities (Directorate General of Taxation, 2012).

Secondly, it is a big opportunity for tax fraudster to hide the proceeds from illicit financial activities when there are no rules that restrict cash payment transaction. Restriction cash payment transaction is a necessity if DGT want to tax those proceeds from illicit financial activities. When the perpetrators received payment from illicit activities through bank accounts, it is easy for law enforcement agency such as DGT to identify those activities and taxing the proceeds. However Indonesia has no rules to restrict cash payment transaction. INTRAC in late 2011 proposed that Indonesia should restrict cash payment upper limit to IDR 100 million per transaction (Ali 2011). Payment over IDR 100 million must use bank transfer so that the payment easily monitored.

To sum up illicit financial activity should be combated because it is crime and the perpetrators do not pay taxes. There are two advantages if DGT could impose a tax against illicit financial activities which are reducing the occurrence of those activities and increase the tax revenues. However in order to do that, a cooperation of Law Enforcement Agencies such as INTRAC, Indonesian Police, Indonesian Attorney and DGT is absolutely necessary. Financial Enforcement Network (FiNCEN) in United States of America could be used as benchmark. The restriction of cash payment in financial transaction should also be applied because of perpetrators easily hide their illicit activity using cash payment.


Ali, F 2011, “PPATK Minta Transaksi Tunai Perbankan Maksimal Rp 100 Juta”, Media Indonesia Online, 23 December, accessed 16/01/2011, http://www.mediaindonesia.com/read/2011/12/12/286587/20/2/PPATK-Minta-Transaksi-Tunai-Perbankan-Maksimal-Rp100-Juta

Directorate General of Taxation 2011, 2010 Annual Report, Directorate General of Taxes, Jakarta, p. 62

Embassy of Indonesia 2007, Anti-money laundering agency reports 430 suspicious transactions, accessed 27-05-2010, http://www.indonesia-ottawa.org/economy/Economicissues/money-laundering-report-06.htm

Law 36, 2008 on the Amendment of Income Tax Law

O’Donnell, D 2011, “The Tax Administrations and the Taxpayer’s Social responsibility: Strategies for Combating Harmful Tax Planning”, CIAT Tax Thematic Series: Tax Evasion,No. 7, January, pp. 56-65, accessed 23/12/2011, http://www.ciat.org/images/documents/biblioteca/Serie/tema_series7.pdf

The World Bank 2007, Stolen Asset Recovery (StAR) Initiative: Challenges, Opportunity, and Action Plan, Washington, The World Bank, accessed 16/01/2012, http://siteresources.worldbank.org/NEWS/Resources/Star-rep-full.pdf



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