I. Background & Purpose
The WCO has released guidelines for strengthening cooperation and the exchange of information between Customs and Tax authorities at the national level (Guidelines). Significant Automatic Exchange of Information (AEOI) changes are being implemented around the world. Thus, every business role in Indonesia has to be prepared for the impact of the changes if the guidelines are being developed and implemented effectively in Indonesia.
While generally Customs are responsible for the assessment and collection of customs duties, tax authorities are generally responsible for the assessment and collection of taxes. In some cases, however (e.g., Indonesia), Customs are also responsible for the collection of indirect taxes such as Value Added Tax (VAT)/Article 22 Income Tax on imported goods on behalf of tax authorities. Nonetheless, both agencies are responsible to mobilize revenue for the government and have an equally important role in combating financial crimes, e.g., money laundering, tax irregularities and crimes. Thus, the purpose of the guidelines is merely to provide general guidance, principles and ideas to Customs and Tax authorities to enhance and strengthen the existing cooperation at the national level for their mutual benefit.
In particular, the guidelines encourage Customs and Tax authorities to cooperate well for their mutual benefit and provide a comprehensive explanation of enablers for cooperation and exchange of information, information exchange mechanism, other forms of cooperation (i.e., joint activities), and framework for developing a Memorandum of Understanding/Agreement between Customs and Tax authorities.
II. Possible Outcome and Benefits
The possible benefits of enhanced cooperation between Customs and Tax authorities are as follows:
- Efficient collection of duties and tax.
- Efficient and effective exchange of information, which would make cross-border trade processes more predictable and less burdensome for traders - fostering cross-border and economic development, increasing their capabilities to identify a range of financial crimes, increasing the ability to access an additional source of information that can be used to ensure tax compliance and identify potential non-compliance by providing the missing link in the information "ecosystem".
- Comprehensive risk management and/or post-clearance audit; improvement of trade facilitation and business environment; simplification of processes for customers and administration; and effective enforcement of financial and tax crimes.
- The import and export data of Customs administrations and the purchase and sales data of Tax authorities may be mutually shared and matched, which could potentially result in the detection of irregularities, including undeclared or mis-declared tax bases for both authorities. The sharing by Tax authorities of information on payment transactions [both import (purchase) and export (sales)] may also be useful to Customs from the valuation perspective.
- When verifying the Customs value for related party transactions involving multinational enterprises, Customs can benefit from information derived from the transfer pricing, such as whether the transaction price is generally undervalued to reduce customs duties, whereas tax can get benefit in detecting whether the goods and services are overvalued to reduce taxable profit.
- A joint approach to compliance management and audit would result in optimal revenue collection for the government.
- It is a great opportunity for Customs and Tax authorities to work together on seeking solutions to Customs fraud.
III. What Will be Exchanged?
Looking at the enablers for cooperation and exchange of information set out in the guidelines, we may expect the Indonesian government to start committing on enhancing cooperation and developing a legal framework that clearly stipulates and enables the exchange of information/data between Customs and Tax authorities. The legal framework should provide the scope of information types that can be exchanged such as Customs import/export data, tax returns, transfer pricing information, assessment/investigation/audit reports, data on offenders/debt/shell companies information, intelligence information, risk profiles, information on Authorized Economic Operators, technical information on complex issues via awareness-raising/training events, companies' general information (i.e., legal representatives, business registration, financial reports) or Information obtained from foreign Customs or Tax administrations, where legally possible. The exchange of information will clearly provide benefits for both authorities.
Further, the government has to ensure that there will be proper legal safeguards of data privacy and protection and most importantly improvements of information technology in both authorities. Once the enablers are set up, information can be exchanged using the following mechanisms:
- Exchange of information on request: Information is provided when it is asked for.
- Automatic exchange of information: Information is provided regularly, on the basis of an agreement, even if the counterpart authority has not asked for it.
- Spontaneous exchange of information: Information deemed relevant to the work of the other authority is provided voluntarily, without the latter having asked for it.
- Systematic exchange of information: Exchange of tax database/documents periodically, e.g., daily, weekly or monthly.
- Access to each other’s databases.
- Interconnected/interoperable or integrated databases.
- Specialized Customs and Tax data analytics to feed in intelligent, insightful information to the policy makers and administrators.
IV. Indonesia's Point of View
The government of Republic of Indonesia actually had seen the importance of this cooperation. This is implemented by the issuance of Ministry of Finance Decision No. 351 of 2012 on Joint Audit between the Directorate General of Tax and Directorate General of Customs and Excise which among others stipulates a joint approach to compliance audits between Customs and Tax. However, this has not been regularly implemented. We might expect that once the legal framework on Customs - Tax cooperation has been formed and implemented in the future, joint audits will be implemented more often.