JAKARTA (TheInsiderStories) - Indonesia - Singapore Bilateral Investment Protection and Treaty, which establish rules on the treatment of investors and investments from both countries, came into effect on March 9. The first signed of the agreement held in October 2018.
The tax treaty is an international agreement between two countries that were made to avoid double taxation so as not to hamper the economy of the two countries. One of these policies is also used to prevent the practice of tax avoidance.
Foreign minister, Retno Marsudi, stated in a statement, the treaty could potentially boost two-way investment by up to 22 percent over the next five years. While, Singapore’ trade and industry ministry, Chan Chun Sing, hope with the deal, his country continue to be the largest investor for the partnering country.
As the first commitment, he said, Singaporean companies have been among the first to invest in the Kendal Industrial Park in Central Java. Since the zones opened in 2016, more than 60 companies have set up their operations in the special economic zone, pumping in US$1.73 billion worth of investment.
The initiative to form the bilateral agreement originated from the meeting of the President Joko Widodo with the Prime Minister of Singapore Lee Hsien Loong in September 2017 to support economic growth of the two. Singapore is the first partner in this investment cooperation, given its status as the main investment country in Indonesia.
Since 2014, Singapore has always been ranked first in the realization of investment in Indonesia, covering among others the oil, gas and financial sectors. This agreement is also expected to encourage Indonesian investors to invest and develop their business network in Singapore.
As known, Indonesia and Singapore have formed six working groups on Batam, Bintan, Special Karimun, labor, investment, transportation, agribusiness, and tourism sectors. On Oct. 10, 2020, a number of agreements were reached during the Annual Leaders Meeting between Widodo and Lee at The Istana, Singapore.
The countries also signed bilateral liquidity management arrangements, Flight Information Region, export – import data, and vocational education. In addition, the two also agreed to increase cooperation in the fields of electronic commerce, financial technology, data services, techno park development, and regional innovation hubs.
The Indonesian government has tried to renegotiate the tax treaty with Singapore to boost the tax revenues in the country. The benefits of the Indonesia – Singapore tax treaty had the potential to be misused, in the sense, enjoyed by taxpayers who should not enjoy it.
When investors from Indonesia buy bonds issued by the government through banks or securities in Singapore, they will not be taxed on the interest income earned. While, if buying using a bank or securities in Indonesia interest income taxable 15 percent.
The regulation also contributed to Indonesia’ lackluster tax revenue. Until August, the realization of tax revenue was recorded at Rp801.02 trillion (US$55.62 billion), or only grew 1.4 percent annually. The figure only reached 50.78 percent of the tax revenue target by the end of 2019 of Rp1,577.56 trillion.
Therefore, Finance Minister Sri Mulyani Indrawati, stated that the government would review all agreements with countries that have tax cooperation. As is known, the double tax agreement was applied to all of Indonesia’ investment partner countries.
According to Investment Coordinating Board data, Singapore was Indonesia’ largest foreign investor in 2020, with total investment of $9.8 billion, which represented a significant increase from $6.5 billion in 2019.
US$1: Rp14,400
Written by Staff Editor, Email: theinsiderstories@gmail.com
