Enhancing Indonesia’s Tax Base and Ratio: An Analysis of Confiscating Corporate Corruption Assets for Tax Crimes Without Criminal Penalties

Jakarta, taxjusticenews.com:

1. Executive Summary

This report analyzes the feasibility and implications of confiscating assets derived from corporate corruption in Indonesia to address tax liabilities, without the prerequisite of a criminal conviction specifically for those tax offenses. The objective is to determine whether such a mechanism could legally and practically enhance Indonesia’s tax base and tax ratio. The current legal framework in Indonesia presents several limitations to this approach, primarily due to the traditional requirement of a criminal conviction for asset confiscation. The proposed Asset Forfeiture Bill offers potential avenues for non-conviction based asset forfeiture, which could be leveraged in this context. However, the fundamental principle of legality (“Nullum crimen, nulla poena sine lege”) poses a significant challenge, as it generally requires a pre-existing law defining the offense and prescribing the penalty. While the strategy holds the potential to significantly boost state revenue and potentially deter future financial crimes, its implementation necessitates careful legal reforms and robust procedural safeguards to ensure adherence to due process and human rights. Key recommendations include amending the Asset Forfeiture Bill to explicitly cover tax crimes involving corruption and developing clear legal guidelines for non-conviction based confiscation in such cases.

2. Introduction

Indonesia has been actively pursuing strategies to augment its tax revenue and improve its tax ratio, recognizing the crucial role of taxation in funding national development and achieving economic self-sufficiency. The government has set ambitious targets for increasing the tax ratio, reflecting a strong imperative to mobilize greater domestic resources. In this context, a novel approach involves targeting the substantial assets that may have been derived from corporate corruption and have subsequently evaded taxation. The failure to tax these ill-gotten gains represents a significant loss to the state’s potential revenue.

This report addresses the central question of whether Indonesia can legally and practically confiscate assets linked to corporate corruption to cover outstanding tax liabilities, without requiring a prior criminal conviction specifically for those tax offenses. This inquiry delves into the intricate interplay between Indonesia’s tax laws, anti-corruption legislation, and the legal principles governing asset confiscation. The report will examine the current legal landscape of tax crimes and penalties, the framework for asset confiscation, the distinction between corruption and tax evasion, the implications of the principle of legality, the status of the proposed Asset Forfeiture Bill, the scope of administrative sanctions, Indonesia’s tax ratio and government strategies, and the potential impact of the proposed strategy on the tax base and ratio. By analyzing these key legal and practical aspects, this report aims to provide a comprehensive assessment of the feasibility and implications of this innovative approach to enhancing Indonesia’s fiscal capacity.

3. Current Legal Landscape of Tax Crimes and Penalties in Indonesia

3.1 Law No. 6 of 1983 and its Amendments (Law No. 28 of 2007 and Law No. 7 of 2021)

The foundation of Indonesia’s tax law is Law No. 6 of 1983 concerning General Provisions and Tax Procedures (KUP Law), which has undergone several significant amendments to adapt to evolving economic conditions and to strengthen tax administration. Notable amendments include Law No. 28 of 2007 and the more recent Law No. 7 of 2021 on the Harmonization of Tax Regulations (HPP Law). These amendments have refined the definitions of tax offenses and adjusted the corresponding penalties.

Articles 38, 39, and 39A of the amended KUP Law are central to understanding tax crimes and their penalties. Article 38 addresses unintentional negligence, such as failing to submit a tax return or submitting inaccurate information without intent. The penalties for such oversights include detention or imprisonment for up to one year and fines of up to twice the amount of tax due. In contrast, Articles 39 and 39A deal with intentional acts of tax evasion and fraud, which carry much more severe consequences. Article 39 outlines various intentional offenses, including failure to register, misuse of a tax identification number, failure to submit accurate tax returns, refusal to be audited, and falsification of records. The penalties for these intentional offenses can include imprisonment for up to six years and fines of up to four times the tax due. Furthermore, Article 39A specifically targets the intentional issuance or use of fake tax invoices and related documents, with penalties of imprisonment up to six years and fines up to six times the amount of tax involved. Repeat offenses within a year can lead to a doubling of the imprisonment term.

The enforcement of criminal sanctions for tax crimes in Indonesia adheres to the principle of ultimum remedium, meaning that criminal prosecution is considered the final option after administrative measures have been explored. The government’s priority is often the recovery of state financial losses resulting from tax offenses. In line with this principle, the tax investigation process can be halted if the taxpayer demonstrates a willingness to settle their outstanding tax liabilities along with the applicable administrative sanctions. This mechanism allows taxpayers to rectify their non-compliance and potentially avoid criminal prosecution by paying the principal tax owed and the associated penalties. It is also important to note that there is a statute of limitations for prosecuting tax crimes, which is generally ten years from the time the tax became due. This time limit could have implications for pursuing older cases of tax evasion linked to corporate corruption.

3.2 Corporate Criminal Liability for Tax Offenses

A notable challenge in the enforcement of tax criminal law in Indonesia concerns the criminal liability of corporations. While Indonesian Tax Law acknowledges corporations as legal subjects, the Criminal Code (KUHP) does not explicitly address corporate criminal liability. This discrepancy creates a legal gap, as the Tax Law includes criminal provisions for tax offenses committed by corporations, but lacks clear legal reference points in either the Tax Law itself or the general criminal law for holding corporations criminally liable. This ambiguity can complicate efforts to prosecute corporations for large-scale tax evasion resulting from activities such as corporate corruption.

4. The Legal Framework for Asset Confiscation in Indonesia

4.1 Confiscation in Criminal Cases (Including Tax Crimes)

The legal framework for asset confiscation in Indonesia is primarily situated within the realm of criminal law and is traditionally linked to criminal proceedings. The Criminal Procedure Code (KUHAP) provides general provisions for the seizure of assets for evidentiary purposes during investigations, prosecutions, and trials. Furthermore, specific laws, such as those concerning corruption (Law No. 31 of 1999 as amended) and money laundering (Law No. 8 of 2010), contain provisions that allow for the confiscation of assets that are proven to be the proceeds of crime.

A fundamental principle in the current Indonesian legal system is the requirement of a criminal conviction before assets can be legally confiscated as proceeds of a crime. This means that unless an individual or entity has been found guilty of a criminal offense in a court of law, their assets are generally protected from confiscation by the state. This prerequisite of a criminal conviction presents a significant hurdle for the proposed strategy of confiscating assets derived from corporate corruption to cover tax liabilities without a prior conviction specifically for those tax offenses. Indonesia, for instance, typically only accepts requests for international mutual legal assistance in asset recovery matters when they are based on a criminal conviction in the requesting country.

Notwithstanding the general requirement of a criminal conviction, the Attorney General’s Office (AGO) holds the authority to monitor, seize, and return assets that have been unlawfully obtained. This power is particularly relevant in cases of corruption, where the recovery of state losses is a key objective. However, even in these instances, the confiscation process typically follows a criminal conviction of the individuals or entities involved in the corrupt acts.

4.2 Asset Recovery in Corruption Cases

Indonesia has specific legislation aimed at recovering assets that have been acquired through corrupt activities, notably Law No. 31 of 1999 as amended by Law No. 20 of 2001 concerning the Eradication of Corruption Crimes. This law provides for the seizure of both movable and immovable assets that have been utilized in or obtained through corrupt practices, including companies owned by individuals convicted of corruption. The primary goal of asset recovery in corruption cases is to return the ill-gotten gains to the state and to compensate for the financial losses incurred. While this legal framework exists, its effectiveness is often hampered by the requirement of a criminal conviction and the challenges in tracing and recovering assets that may be hidden or transferred to other parties.

The concept of “illicit enrichment,” which refers to the acquisition of wealth that is disproportionate to an individual’s known legitimate income, is increasingly being recognized as relevant to asset recovery in corruption cases. The proposed Asset Forfeiture Bill is expected to address this concept, potentially allowing for the confiscation of assets where the owner cannot provide a legitimate source for their acquisition. This shift towards focusing on the assets themselves, rather than solely on securing a criminal conviction, could be significant for enhancing asset recovery efforts in Indonesia.

5. Distinguishing Corruption and Tax Evasion Offenses Under Indonesian Law

Under Indonesian law, corruption offenses and tax evasion offenses are distinct categories of financial crimes, although they can sometimes be interconnected. Corruption typically involves the abuse of power or position by a public official or a person in a position of trust for personal gain or the benefit of others, often resulting in financial loss to the state or the economy. Examples include bribery, embezzlement of state funds, extortion, and fraudulent acts that harm state finances. The primary focus of corruption offenses is the breach of integrity and the misuse of entrusted authority.

Tax evasion, on the other hand, involves the illegal avoidance of tax liabilities by individuals or entities. This can take various forms, such as underreporting income, overstating deductions, using false invoices, or failing to report income altogether. While tax avoidance involves legally minimizing tax obligations through loopholes, tax evasion is a criminal offense that directly violates tax laws. The primary focus of tax evasion offenses is the failure to comply with tax regulations and the resulting loss of revenue to the state.

Despite these fundamental differences, corruption and tax evasion can be intertwined, particularly in cases of corporate corruption. For instance, income derived from corrupt activities is still considered taxable income under Indonesian law. If a corporation or individual fails to report such income and pay the corresponding taxes, they can be held liable for tax evasion in addition to the underlying corruption offenses. This interconnectedness highlights the potential for tax authorities and anti-corruption bodies like the KPK to collaborate in identifying and pursuing cases where corporate corruption leads to significant tax evasion. By sharing data and coordinating investigations, these agencies can potentially enhance the recovery of illicitly obtained assets and ensure that all relevant financial crimes are addressed.

6. Implications of the “Nullum Crimen, Nulla Poena Sine Lege” Principle

The principle of “Nullum crimen, nulla poena sine lege” (no crime, no punishment without law) is a cornerstone of criminal law in Indonesia, as it is in many legal systems around the world. This principle, often referred to as the principle of legality, dictates that no act can be considered a crime and no punishment can be imposed unless there is a pre-existing law that clearly defines the crime and specifies the penalty. It comprises several key aspects, including the requirement that criminal laws must be written (nullum crimen sine lege scripta), they must be precise and unambiguous (nullum crimen sine lege certa), they should not be applied retroactively (nullum crimen sine lege praevia), and they should be strictly construed without the use of analogy to create new offenses or penalties (nullum crimen sine lege stricta). The fundamental aim of this principle is to ensure legal certainty, protect individual liberties against arbitrary state action, and uphold the rule of law.

The principle of legality has significant implications for the proposal to confiscate assets derived from corporate corruption to cover tax liabilities without a specific criminal conviction for those tax offenses. Asset confiscation is generally considered a form of penalty or sanction under Indonesian law, particularly when it involves the deprivation of property rights. According to the principle of “nulla poena sine lege” (no penalty without law), a penalty can only be imposed if it is prescribed by a law that was in force at the time the offense was committed. Therefore, to confiscate assets as a consequence of tax evasion, there would typically need to be a criminal conviction for the tax evasion offense, based on a law that specifically provides for asset confiscation as a penalty for that offense.

Imposing asset confiscation for tax crimes without a criminal conviction for those specific crimes could be seen as potentially violating the principle of legality, as it might amount to imposing a penalty without a clear legal basis tied to a specific criminal act that has been proven in court. This could raise concerns about legal certainty and fairness, as individuals or corporations might face the deprivation of their assets without having been formally convicted of a crime that explicitly warrants such a penalty.

However, the Indonesian legal system, particularly with the enactment of Law Number 1 of 2023 concerning the Criminal Code (UU 1/2023), also recognizes the concept of “asas legalitas materiel” (material legality principle). This principle allows for the consideration of unwritten law or the law living in society as a basis for determining whether an act is punishable, in addition to formal written laws. While this might offer some flexibility in interpreting the principle of legality, its application to imposing penalties like asset confiscation without a clear statutory basis remains contentious and would likely face significant legal challenges, especially concerning fundamental rights like the right to property.

7. The Proposed Asset Forfeiture Bill in Indonesia

The proposed Asset Forfeiture Bill in Indonesia has been a subject of discussion and debate for over a decade, reflecting the complexities and sensitivities surrounding the confiscation of assets, particularly in the context of corruption. Despite strong public and governmental support for its enactment as a crucial tool in combating corruption and recovering state losses, the bill has faced numerous delays in the legislative process. Most recently, in May 2023, the government, under the previous administration, made renewed efforts to push for its deliberation by the House of Representatives (DPR). However, as of late 2024 and early 2025, the bill has not yet been passed into law and was notably absent from the 2025 Priority National Legislation Program (Prolegnas). Despite this setback, the Corruption Eradication Commission (KPK) has vowed to continue advocating for its prioritization.

A key aspect of the proposed Asset Forfeiture Bill is its inclusion of provisions for non-conviction based asset forfeiture. This approach marks a significant shift from the traditional requirement of a criminal conviction for asset confiscation, as it allows the state to pursue the forfeiture of assets that are suspected to be the proceeds or instrumentalities of crime, even in the absence of a criminal conviction against a specific individual. The bill recognizes that legal actions for asset confiscation are directed against the assets themselves, rather than the individuals who may hold them.

Under the proposed bill, non-conviction based asset forfeiture could occur under several conditions, including when the suspect or accused has died, fled, is permanently ill, or their whereabouts are unknown. It could also apply if the accused has been acquitted of all criminal charges, if the criminal case cannot proceed to trial, or if additional criminal assets are discovered after a guilty verdict has been reached but not yet confiscated. This paradigm shift reflects an international trend towards “following the money” or “following the assets” in combating financial crimes, with an emphasis on recovering illicitly obtained wealth rather than solely focusing on the prosecution and punishment of offenders. The concept of “unexplained wealth,” where assets disproportionate to an individual’s legitimate income can be targeted, is also likely to be a feature of the bill.

If enacted, the Asset Forfeiture Bill, with its provisions for non-conviction based asset forfeiture, could potentially provide a legal pathway for Indonesia to confiscate assets derived from corporate corruption to address outstanding tax liabilities, even without securing a criminal conviction specifically for tax evasion related to those corrupt proceeds. The broad definition of “criminal assets” in the bill, which includes assets derived directly or indirectly from criminal actions, could encompass funds obtained through corruption. However, the specific application of these provisions to tax crimes involving corruption would likely depend on the final wording of the law and its interpretation by the courts.

8. Administrative Sanctions for Tax Crimes and Asset Recovery Mechanisms

Indonesia’s legal framework for tax crimes includes both administrative and criminal sanctions. Administrative sanctions are typically imposed for less severe violations of tax regulations and primarily aim to ensure compliance and recover any unpaid taxes. These sanctions can take various forms, including interest charges for late payments, fines for failure to submit returns or other reporting violations, and increases in the amount of tax payable for underreporting or providing incorrect information. The specific amounts and conditions for these administrative sanctions are detailed in Law No. 6 of 1983 and its amendments, particularly the HPP Law.

While administrative sanctions are designed to recover unpaid taxes and penalize non-compliance, the existing mechanisms do not explicitly include provisions for asset recovery related to corruption, beyond the recovery of the tax owed on the proceeds of that corruption. The focus of administrative sanctions is primarily on the taxpayer’s direct obligations under the tax law, such as timely filing and accurate payment of taxes, and the penalties are typically monetary in nature, directly linked to the tax liability. There is no indication in the provided research material that current administrative procedures for tax crimes allow for the tracing and seizure of assets that are directly linked to corrupt practices, even if the tax offense is the primary focus of the administrative action. The recovery of assets derived from corruption is generally pursued through criminal proceedings under anti-corruption and money laundering laws, which, as discussed earlier, traditionally require a criminal conviction.

9. Indonesia’s Tax Ratio: Current Status and Government Strategies

Indonesia’s tax ratio, which measures the proportion of total tax revenue collected by the government relative to the country’s Gross Domestic Product (GDP), is a key indicator of fiscal performance. Recent data indicates that Indonesia’s tax ratio has hovered around the 10-12% mark. As of December 2024, the tax revenue as a percentage of GDP was reported at 11.8%, an increase from 9.5% in September 2024. However, this figure still remains below the government’s ambitious targets and the average of many peer countries.

The Indonesian government has outlined various strategies and set targets for increasing the tax ratio in the coming years. Under the 2025–2029 National Medium-Term Development Plan (RPJMN), the government has set a tax ratio target ranging from 11.52% to 15%. Key strategies include efforts to expand the tax base by encouraging more individuals and businesses to enter the formal sector, such as promoting bank account ownership and integrating the national identification number (NIK) with the tax identification number (NPWP). The government is also focused on enhancing tax compliance through improved tax administration systems, including the implementation of the Core Tax Administration System (CTAS), which aims to modernize and integrate all tax processes. Other measures under consideration or implementation include potential adjustments to the Value Added Tax (VAT) rate, providing fiscal incentives to support certain sectors, and strengthening international cooperation in tax matters to curb tax avoidance. The establishment of a National Revenue Agency has also been proposed as a way to streamline and improve the efficiency of revenue collection.

10. Potential Impact of Confiscating Corporate Corruption Assets on Indonesia’s Tax Base and Ratio

Confiscating assets derived from corporate corruption that have evaded taxation holds significant potential for positively impacting Indonesia’s tax base and tax ratio. The recovery of substantial assets obtained through corruption, which often goes unreported and untaxed, could lead to a direct, potentially one-time increase in the tax base as these funds are brought back into the formal financial system and subjected to taxation. The scale of financial losses due to corruption in Indonesia is considerable, with some estimates reaching trillions of rupiah. Recouping even a fraction of these assets and ensuring their taxation could significantly boost state revenue and improve the tax ratio.

Furthermore, the successful implementation of a mechanism to confiscate and tax assets from corporate corruption could have long-term effects on tax compliance. By demonstrating that illicitly obtained wealth will be seized and taxed, the government could create a stronger deterrent against both corruption and tax evasion. This could foster a culture of greater compliance among corporations and individuals, leading to a more sustainable increase in the tax base over time.

Moreover, recovered assets could be reinvested in the economy through government spending on infrastructure, education, and other public services. This reinvestment could stimulate economic activity, leading to increased incomes and consumption, which would indirectly further expand the tax base and improve the tax ratio.

While the potential impact is significant, quantifying the exact effect on Indonesia’s tax base and ratio is challenging and would require further research and detailed data on the extent of untaxed wealth derived from corporate corruption. Nevertheless, the principle remains that recovering and taxing these assets represents a substantial opportunity to enhance Indonesia’s fiscal capacity and support its development goals.

11. Legal and Practical Challenges and Considerations

Implementing a system of asset confiscation for tax crimes without a specific criminal conviction for those crimes presents several legal and practical challenges and considerations. The most significant legal challenge is the principle of legality, which generally requires a criminal conviction before a penalty like asset confiscation can be imposed. Implementing non-conviction based asset forfeiture, even for proceeds of crime like corruption, would need to be carefully structured within the legal framework to avoid violating this fundamental principle and to withstand potential constitutional challenges, particularly concerning the right to property. Clear legal definitions of what constitutes “corporate corruption assets” in this context and precise procedures for their confiscation would be essential to prevent arbitrary or abusive actions.

Practically, identifying, tracing, and confiscating assets derived from corporate corruption can be exceedingly difficult. These assets are often concealed through complex financial transactions, layered ownership structures, and the use of offshore accounts in jurisdictions with strict secrecy laws. Effective asset recovery in such cases often necessitates robust international cooperation, including mutual legal assistance treaties and information sharing agreements with other countries.

Finally, the implementation of a system that allows for asset confiscation without a criminal conviction requires strong oversight and accountability mechanisms. These safeguards are crucial to ensure that the process is fair, transparent, and not susceptible to abuse of power. Mechanisms for judicial review and the protection of the rights of third parties who may have a legitimate claim to the assets would also be necessary.

12. Recommendations

To facilitate the confiscation of corporate corruption assets for tax crimes without requiring a criminal conviction for those specific tax offenses, while respecting legal principles and due process, the following recommendations are offered:

• Amend the Proposed Asset Forfeiture Bill: The current Asset Forfeiture Bill should be amended to explicitly include tax crimes that involve proceeds derived from corruption as predicate offenses for non-conviction based asset forfeiture. This would provide a clear legal basis for targeting these assets even if a direct criminal conviction for tax evasion is not the primary focus.

   

• Develop Clear Legal Guidelines and Procedures: Alongside the Asset Forfeiture Bill, comprehensive legal guidelines and procedures should be developed to govern the process of non-conviction based asset confiscation in cases involving corporate corruption and tax evasion. These guidelines should clearly define the types of assets that can be targeted, the standards of proof required to establish a link to corruption, and the procedures for seizure, management, and disposal of confiscated assets. Robust mechanisms for judicial oversight, including the requirement of court approval at various stages of the process, and clear avenues for appeal by affected parties should be established.

   

• Strengthen Collaboration Between Agencies: Enhance the collaboration and information sharing between tax authorities (Directorate General of Taxes) and anti-corruption agencies (KPK). This would improve the identification of cases where corporate corruption has led to tax evasion and facilitate coordinated efforts in asset tracing and recovery.

   

• Explore “Unexplained Wealth Orders”: Consider incorporating the concept of “unexplained wealth orders” into the legal framework. This would allow authorities to seek the confiscation of assets where the owner cannot provide a credible explanation for their legitimate source, particularly in cases where there is a strong suspicion of corruption and tax evasion.

   

• Enhance International Cooperation: Strengthen international cooperation and engagement in mutual legal assistance to improve the tracing and recovery of assets that may be located in foreign jurisdictions. This includes establishing and maintaining effective channels for communication and collaboration with relevant authorities in other countries.

   

• Conduct Further Research: Undertake further research to better quantify the extent of untaxed wealth derived from corporate corruption in Indonesia and to model the potential impact of a successful asset confiscation strategy on the country’s tax base and tax ratio. This data would provide valuable insights for policymakers and support evidence-based decision-making.

   

13. Conclusion

Confiscating assets derived from corporate corruption to address tax liabilities without requiring a criminal conviction for those specific tax offenses presents an interesting, albeit complex, avenue for enhancing Indonesia’s tax base and tax ratio. The current legal landscape, with its traditional emphasis on criminal convictions for asset confiscation and the fundamental principle of legality, poses significant challenges to this approach. However, the proposed Asset Forfeiture Bill, with its provisions for non-conviction based asset forfeiture, offers a potential framework for overcoming these hurdles.

The successful implementation of such a strategy would necessitate carefully crafted legal reforms, including amendments to the Asset Forfeiture Bill and the development of clear procedural guidelines that adhere to the principles of legality and due process. Robust oversight and accountability mechanisms would be crucial to ensure fairness and prevent abuse. Furthermore, effective collaboration between tax authorities and anti-corruption agencies, along with enhanced international cooperation, would be essential for identifying, tracing, and recovering often well-hidden assets.

While the potential benefits in terms of increased state revenue and improved tax compliance are substantial, a balanced approach that respects fundamental legal principles and human rights while effectively combating corruption and tax evasion is paramount. Further research to quantify the potential impact and to address the legal and practical challenges will be critical in determining the overall feasibility and effectiveness of this strategy in strengthening Indonesia’s fiscal capacity.