What is Tax Haven and Why is Indonesia Actively Fighting Tax Haven?

Hello Sobat OSC! Have you ever heard about Tax Haven country? I think it’s a really popular word for now, according to there are a lot of gambling or flexing cases in Indonesia. As we know, Indonesia isn’t a tax haven country because all Indonesian have the obligation that must be fulfilled which is to pay taxes. For further information, the Ministry of Defense of the Republic of Indonesia states “The involvement of citizens in paying taxes is an effort to defend the state to contribute indirectly to improving community welfare and nation-building”.

 

In general, a tax haven is defined as a country or region that imposes a low tax rate of up to 0% or does not impose taxes at all and guarantees the confidentiality of its assets. Not only that, the OECD also stipulates other criteria to categorize a country as a tax haven which is a lack of transparency in tax collection and no substantial activity requirement for the company.

 

Advantages of Tax Haven

As we look at the definition, we know the advantage of a tax haven includes:

A. Tax reduction

B. Privacy

Unauthorised information and banking details, and the names of the director and shareholders are never publicised

C. Convenience

The process of incorporating or setting up any kind of financial vehicle is made extremely easy, simple, and fast in most tax havens. Companies can typically be incorporated in under a week, the registration costs are low, and in many jurisdictions the entire process can be completed remotely. The annual operating requirements are also minimal in most jurisdictions, with few reporting requirements and no exchange control.

D. Asset protection

Disadvantages of Tax Haven

If there are benefits so there will be a price to be paid, right? it is generally not fully apparent when countries set out to become tax havens but may become burdensome later.

A. Bank failures or other financial problems do occur

The slightest whiff of financial scandal—such as a prominent bank defaulting on its obligations—is enough to send investors in search of another tax haven that offers more security. Thus, it also difficult for tax haven company to open in corporate bank account according to many reputable banks regard tax haven companies as higher risk clients

B. The purpose of tax haven activity is tax avoidance which means tax haven activity generates very little investment of tangible assets; therefore, tax haven business is extremely volatile and lacks stability.

Why is Indonesia actively fighting tax havens?

At the G20 conference, the G20 member countries who attended agreed to fight tax evasion which was mostly done by multinational companies. Countries that have been harmed by tax havens have agreed to jointly disclose their tax data. Not only that, but Indonesia has also joined the Organization for Economic Co-operation and Development (OECD) and has signed more than 6,100 agreements on the exchange of information between countries (bilateral). With this information, the tax collection process can be more efficient. Thus, with the same information and the same treatment, for tax haven countries it is no longer possible to try to do it.