July 5, 2019
Washington, DC –In a comprehensive new study on the level of trade misinvoicing in Indonesia in 2016, GFI found that the estimated potential tax revenue losses to the Indonesian government that year is approximately US$6.5 billion, equivalent to 6.0 percent of the value of Indonesia’s total government revenue collections in 2016.Trade misinvoicing is a method for moving money illicitly across borders which involves the deliberate falsification of the value, volume, and/or type of commodity in an international commercial transaction of goods or services by at least one party to the transaction and constitutes the largest component of illicit financial flows as measured by GFI.
Using a trade gap analysis, GFI was able to estimate potential revenue losses to the misinvoicing of Indonesia’s imports and exports across all trading partners. GFI estimates that the value of the trade gap for misinvoiced goods equals US$38.5 billion, or 13.7 percent of the country’s total trade of US$280.2 billion in 2016.
The report, titled Indonesia: Potential Revenue Losses Associated with Trade Misinvoicing, analyzes Indonesia’s bilateral trade statistics for 2016 (the most recent year for which sufficient data are available) as published by the United Nations Comtrade database. The detailed breakdown of bilateral Indonesian trade flows in Comtrade allowed for the computation of trade value gaps that are the basis for trade misinvoicing estimates. Import gaps represent the difference between the value of goods Indonesia reports having imported from its partner countries and the corresponding export reports by Indonesia’s trade partners. Export gaps represent the difference in value between what Indonesia reports as having exported and what its partners report as imported.
“The taxes that go uncollected as a result of trade misinvoicing deprive governments of desperately needed tax revenues for funding basic government services such as health, education, transportation and longterm public investment,” said GFI President & CEO Tom Cardamone. “And while governments lose money, illicit actors gain money which can be used to finance criminal activity.”
Here are a few other notable findings:
- Of the total estimated potential lost revenue of US$6.5 billion, approximately US$3.9 billion was due to export misinvoicing and approximately US$2.6 billion was due to import misinvoicing.
- The US$2.6 billion in import misinvoicing can be further broken down by uncollected VAT tax (US$1.2 billion), uncollected customs duties (US$302 million), and uncollected corporate income tax (US$1.1 billion).
- The US$3.9 billion in export misinvoicing can be further broken down by uncollected corporate income tax (US$1.8 billion) and royalties (US$2.1 billion).
- In 2016, some of the Indonesian imports most at risk for high values of import under-invoicing were essential oils, vehicles, and plastics.
- In 2016, some of the Indonesian imports most at risk for high values of import under-invoicing were from China, Japan and Singapore.
- Looking at both high-risk imports and high-risk trade partners in 2016, GFI found that under-invoiced imports of beverages and essential oils from Singapore, plastics from China and vehicles from Japan and China were highlighted as potential high-level risks for revenue losses.
GFI urges Indonesia to adopt a public registry of beneficial ownership information on all legal entities and to consider using GFI’s online tool GFTrade, designed by GFI to build the capacity of customs authorities to better detect misinvoicing as transactions are occurring and take corrective steps in real time. Indonesia should also encourage other countries to adopt a beneficial ownership registry, to fully implement FATF’s anti-money laundering recommendations, country-by-country reporting, tax information exchange initiatives and the Addis Tax Initiative.
The report was published with the generous support of the Ford Foundation.
###
Press Contact:
Maureen Heydt
Communications Coordinator