Jakarta, CNN Indonesia – State authorities, government administration, economic actors, and social-political relations increasingly encourage openness. One of the waves of openness that rocked the global scene recently was the Panama Papers scandal – opening more than 11.5 million confidential documents created by the company’s service provider Mossack Fonseca.

From the leaked documents, the names of state leaders were revealed, as well as government officials, relatives and close friends of a number of heads of government from around 40 other countries. The heart of the disclosure of the Panama Papers is the actual ownership or the main control of the company (Beneficial Ownership) of a company.

BO disclosures revolve for decades in the economic, financial and tax world. The openness of the BO has become a demand of all countries and a push for various global multilateral forums, both the G20, OECD, as well as economic forums and other development cooperation.

Almost all, including Indonesia, agreed and included ‘BO’s Openness’ as a commitment in the anti-corruption summits forum that took place in London on May 12, 2016. BO’s transparency was considered to be able to prevent corruption, tax avoidance, financing of terrorism, and money laundering practices.

From the same conference, for the tax sector and fiscal transparency, Indonesia said it would implement the G20 principles of both procurement integrity standards and open data principles. In the area of ​​taxation, Indonesia is committed to implementing the Common Reporting Standard and Addis Tax Initiative initiatives.

Get to know beneficial ownership

The initial definition of BO globally was mainly contracted by the OECD, mainly through several rounds of taxation model conventions (OECD Model Tax Convention). In the 2011 OECD Working Party, BO is defined as the actual individual beneficiary.

The OECD divides three types of actual owners and beneficiaries: (1) in a company, BO is a shareholder or member; (2) in a partnership (partnerhip), BO is a partner party both of a limited and general nature; (3) in a trust or foundation, BO is the founder.

In Indonesia, BO is mostly defined in the context of taxation, specifically related to the prevention of misuse of double taxation avoidance agreements (tax treaty). Specifically, the Director General of Tax (DGT) issued a Circular (SE) that referred to the Law on Income Tax (Law Number 7/1983, which was amended several times, most recently by Law Number 36/2008.

DGT has issued SE / Regulations of the Director General several times defining BO, most recently through Director General Number: PER-25 / PJ / 2010. In this regulation, BO is defined as the true owner of the economic benefits of income.

What is meant by BO is income recipient who acts not as an agent, not as a nominee (borrow name); and not a conduit company (intermediary company).

In the context of the extractive industry, the National Regulation Resources Institute (NRGI) in substance the BO definition must cover a number of basic things consisting of the ultimate owner, economic benefits, and control.

BO Disclosure Affects a Number of Sectors

In the economic field, the disclosure of beneficial ownership is the latest demand in the financial, banking and taxation sectors. For law enforcement, disclosure of BO facilitates the search for identity in uncovering criminal cases, facilitates the search and verification of money laundering (TPPU), and maximizes asset recovery from perpetrators of corruption and money laundering.

Although the complex and closed structure of company ownership does not necessarily directly indicate the company’s involvement in financial, taxation and other criminal acts.

However, a report released by ONE in 2014 estimates that developing countries lose around US $ 1 trillion per year or around Rp10 thousand trillion as a result of illegal criminal acts from cross-border deals. Some of these involve companies with unclear ownership (One, The Trillion Dollar Scandal, 2014).

Disclosure of BO information can lead to loss of economic potential and state revenue. This occurs as a result of tax avoidance opportunities (tax avoidance) by taxpayers.

BO information that is not open also raises problems in the capital market and financial sector. The false buying and selling process of securities — the selling company has an ownership affiliation with the buyer’s company. Money market exchanges do not work perfectly because buyers and sellers can be controlled by the same BO, making the performance of the market does not reflect actual performance.

As a result, the movement of price indices and the level of price changes on the market runs imperfectly, impacts on imperfect economic indicators, does not reflect the real situation (camouflage), markets run asymmetrically and tends to be controlled by a handful of profit-taking groups, while the public is again disadvantaged.

Disclosure of BO will create opportunities for many economic actors to do business fairly, compete fairly, and compete to improve the quality of their business. Revealing the BO can avoid monopolies and prevent conflicts of interest in ownership of public resources, such as in the possession of a Mining Business License (IUP).

There are examples of cases in the extractive industry sector, such as oil and gas and mining. From around Rp1,387 trillion of money circulating in this sector, there are thousands of entrepreneurs who enjoy income from this industry. Nevertheless, the profits earned by these companies and entrepreneurs are not yet balanced with the taxes paid to the state.

Based on DGT data in 2014, only around Rp96.9 trillion can be taxed. That is, the ratio between taxes and GDP in this sector is only 9.4 percent.

This happened because the government tax authority did not have accurate information about the BO from companies operating in this sector. Even from the results of the Coordination and Supervision of the KPK in the mineral and coal mining sector, there are around 1,800 NPWPs that hold Mining Business Permits.

BO and Tax Performance

A study conducted by Publish What You Pay Indonesia (Wiko et al., 2016) suggests that the main factor in the loss of potential state revenue is because there are opportunities for tax avoidance by taxpayers. Tax avoidance is caused by three main causes.

First, personal or corporate taxpayer data are weak or invalid and lack updating. Many entrepreneurs have a business and receive income from the business but there is not much information about their presence in the business.

Second, there is the practice of double tax avoidance (DTA), which is triggered by invalid information. This makes it easier for companies and entrepreneurs to transfer their income status to tax heavens. There is also the practice of tax avoidance with a treaty shopping scheme through the utilization of regulatory loopholes in tax cooperation between countries.

Third, there are still regulatory issues in opening BO data. An integrated policy is needed between taxpayer NPWP data, KTP data, customer data and financial transactions, as well as company ownership data. For this reason, the application of the Single Identity Number (SIN) is an urgent agenda to be implemented immediately and is encouraged as a foundation for strengthening tax payment data.

The tax performance can be seen from the value of tax effort. From estimation data conducted by Fenochietto and Passino in 2013 (as quoted by Dhanny Darusalam Tax Center), Indonesia’s tax effort is only 0.43. This means that the realization of tax revenue in Indonesia is only 43 percent of all the existing potential.

Likewise with tax buoyancy. Estimates made by the Fiscal Policy Office-Ministry of Finance in the period 2003-2013, tax buoyancy in Indonesia averaged only 1.8. This means that every 1 percent growth in Gross Domestic Product (GDP) is only able to increase tax revenue growth up to 1.8 times.

BO and Illicit Money Flow

Based on the 2014 Global Financial Integrity report, Indonesia ranks 7th out of 10 major countries with the largest illicit financial flow (IFF) in the world. IFF in Indonesia in 2003-2012 reached US $ 187,884 million or an average of Rp169 trillion per year.

In 2014, IFF Indonesia is estimated to reach Rp227.7 trillion, equivalent to 11.7 percent of the Revised State Budget in that year. In the Mining sector, it is estimated that Rp23.89 trillion, Rp21.33 trillion originating from trade miss-invoicing, and Rp2.56 trillion from hot money narrow / narrow money flows.

The main challenge in uncovering BO will be faced with regulatory issues, synchronizing regulations, and protecting the private data of individual company owners. Another challenge is the political will of policy makers and also President Joko Widodo to seriously seek the disclosure of BO data. (rdk)

In Media, Opini, Blog | Maryati Abdullah | June 21st, 2016