Date
17 January 2017
The return to paper currency is a temporary setback not only for the government's drive to boost tax revenues but also in its fight against money laundering, corruption and terrorism finance. Photo: Reuters
The return to paper currency is a temporary setback not only for the government's drive to boost tax revenues but also in its fight against money laundering, corruption and terrorism finance. Photo: Reuters

New credit card scrutiny sends Indonesians back to cash

Indonesia’s plan to monitor all credit card transactions in a bid to crack down on rampant tax evasion is pushing people back to cash, stifling government efforts to track illicit money flows.

A new government decree requiring credit card providers to submit transaction details – including customer and merchant identities – to the tax office as of May 31 appears to be spooking consumers with card activity falling in April, Reuters reports.

The return to paper currency in an economy that is already heavily cash-based is a temporary setback not only for the government’s drive to boost tax revenues but also in its fight against money laundering, corruption and terrorism finance, the news agency said.

And for consumers wary of increasing scrutiny on their transactions, a preference for paper means carrying around envelopes full of hundreds of bank notes in a country where the largest currency denomination is 100,000 rupiah.

Erwin Karya, a Jakarta-based associate director with real estate agent Ray White, said clients were now starting to use cash instead of card to pay property booking fees – non-refundable deposits used to book properties before home down payments.

“People don’t want to risk swiping credit cards for booking fees,” he said.

“For 10-25 million [rupiah], they just pay in cash for the booking fee.”

Indonesian central bank data showed credit card transaction values dropped 4 percent in April from the same month a year ago, the first on-year decline in the six years of public data records.

The number of credit card transactions, meanwhile, fell by two million in April from a month before, to 23.7 million transactions.

Bank Central Asia, one of the largest credit card providers, saw its transactions fall 15 percent and card cancellations more than double in April, head of the bank’s consumer card business Santoso told Reuters.

“I don’t think they’re all avoiding taxes, but some did say they feel their privacy disturbed – they’re not comfortable,” Santoso said, noting most of the cancellations came from self-employed individuals.

About 7-8 million Indonesians own credit cards, some using more than one, for a total of 16.9 million credit card, catered by 22 banks and one non-bank issuer. These include the country’s biggest banks Bank Mandiri, Bank Central Asia, and foreign players like HSBC, Citibank and Standard Chartered.

Under pressure from falling exports, Jakarta launched last year measures to boost tax revenues, including a tax amnesty for those willing to relocate back home money hidden in offshore accounts.

Only 10 percent of Indonesia’s 250 million population are registered with tax authorities and annual tax revenues amount to 11 percent of gross domestic product, US$30 billion less than what it should be, President Joko Widodo has said.

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RA/CG

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