New Laws Will Erode Banking Secrecy In Indonesia, Bankers Fear

by Mary Swire, Tax-News.com, Hong Kong

02 December 2005

Indonesia's banking sector has voiced concern over new proposals which would require banks to hand over bank account information to the country's tax authority in cases of suspected tax evasion, the Jakarta Post has reported.

Association of State Banks (Himbara) chairman Sigit Pramono stated in a meeting with the House of Representatives' committee on Wednesday that a proposed legislative amendment allowing the tax department to inspect private financial information would violate the principle of banking secrecy as laid down in the country's Banking Law.

Under the current legal situation, banks must keep all information on a customer's account confidential, particularly the name of the account holder and the account balance. This information may only be disclosed following a request from the Bank of Indonesia (BI).

However, under an amendment to the general tax code, the tax office will be permitted to contact banks directly in order to compel them to disclose details of individual bank accounts.

According to Sigit, such a move would erode the basis of trust between banks and clients. Moreover, analysts have expressed concern over the tax department's ability to sensitively handle private financial information, and Sigit suggested that the tax office should only be allowed to request information on an individual's bank account with the consent of the central bank.

Meanwhile, the Association of National Banks (Perbanas) chairman, Agus Martowardojo has expressed alarm at proposed measures that give the tax office the right to freeze a taxpayer's account based only on "alleged indications" of attempts to evade tax.

"The stipulation should only be applied based on sound evidence of an attempt to evade tax, not just indications," Agus stated.

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