Singapore's Ministry of Finance (MOF) has refuted claims by CNBC Indonesia that a tax agreement between the two countries -- the Singapore-Indonesia Avoidance of Double Taxation Agreement (DTA) -- "indulges Singapore".

"Not true that the DTA indulges Singapore"

The article, published on Tuesday (Oct 9), claims that Singapore gains more from the tax agreement as Singaporeans holding Indonesian government bonds do not have to pay tax on interest income gained from those bonds.

In response to the claim, the MOF said in a statement released on Friday (Oct 12) that "it is not true that the DTA indulges Singapore".

It explained that provisions under the agreement are "reciprocal":

"Singapore tax residents are exempted from Indonesian tax on interest income derived from bonds issued by the Indonesia government, and are taxable only in Singapore.

Similarly, Indonesian tax residents are exempted from Singapore tax on interest income derived from Singapore government bonds and are only taxable in Indonesia."

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"Singapore does not condone illicit activities"

The MOF also refuted the claim that Indonesians have been using the tax agreement to evade taxes in Indonesia, saying that "Singapore does not condone illicit activities".

It also said that Singapore "will not hesitate to take firm action against cross-border tax evasion", adding that it welcomes Indonesia to notify Singapore "if there is any specific instance of such activities".

Cooperation with Indonesia to crack down on tax evaders

The MOF also says that Singapore has "robust tax cooperation" with Indonesia.

According to Channel NewsAsia, under the Automatic Exchange of Information (AEOI) arrangement, both countries started exchanging financial data on taxpayers at the end of August this year.

This will allow both countries to detect tax evasion by its citizens in the other party's country and foster relevant laws.

In addition, the MOF says that like Indonesia, Singapore has signed the "Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (base erosion and profit shifting)" which aims to combat treaty abuse.

Tax amnesty introduced by Indonesia in 2016

Indonesia introduced a tax amnesty scheme in July 2016 that offers generous tax rates from 2 per cent to 10 per cent on both declared assets and funds sent back to the country from overseas.

According to the Straits Times (ST), many thought the initiative was started to help the Indonesian government increase its revenue and reduce its budget deficit.

ST reported that Indonesian authorities wanted to use it to get back billions of dollars in lost revenue due to wealthy citizens evading taxes and not declaring their assets.

At the time of the ST report in March 2017, S$8.85 billion worth of tax had been repatriated from Singapore  by Indonesians.

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