Much has been said about Indonesia’s decision to bring back money parked in Singapore. The so called tax amnesty has attracted some worries that Singapore’s position as a financial hub may be threatened if a massive amount of funds flowed back to Indonesia.
Much of that fear is unfounded. According to a RHB report, the tax amnesty scheme in Indonesia has had a much smaller impact on funds flowing out of Singapore’s private banking industry than feared. The funds flowing out of Singapore likely made up only 1-2 per cent of assets under management (AUM) of the private banking industry. Some 79 trillion rupiah (S$8.3 billion) was repatriated in the first nine-month phase of Jakarta’s tax amnesty programme.
What’s more important to know is that the tax differential is not the main reason why monies are parked in Singapore. Granted, offshore funds can attract better preferential tax rates. But for decades, wealthy Indonesians have also looked to the Singapore as a safe haven for their assets. Foreign funds that park money in Singapore are attracted by its stable political environment, strong regulatory regime, rule of law, sound banking system and efficient telecommunication infrastructure, among other things. The many political crises and upheavals that the Indonesian Chinese had to endure from time to time in the last few decades also prompted many to keep some of their monies in overseas markets like Singapore, Hong Kong and other financial cities. In short, there are many reasons why people put money in Singapore and tax benefit is just but one.
It is also worth noting that Indonesian domestic politicians have been quick to point fingers at Singapore for the assets parked overseas. Some politicians and media have erroneously – whether deliberate or not – said Singapore refused to sign an extradiction pact with Indonesia and that Indonesians have been siphoning money up north. Some went as far as to say that these people are hiding in Singapore with their money.
What they didn’t say was Singapore did sign an agreement with Indonesia on the extradition and it was the Indonesian parliament that didn’t want to ratify it for it to be enforced. And meanwhile, these supposedly crooked Indonesians are allowed to travel openly on their passports to and fro Indonesia. No-one over their end had bothered to stop them coming out. So hey, don’t blame us for your own problems.