California to Collect Sales Tax on Medical Marijuana...

The latest figures that are circulating suggest that the State of California is collecting somewhere between USD 58 million and USD 105 million in tax revenue on medical marijuana sales of between USD 700 million to USD 1.3 billion. First things first, USD 1.3 billion in retail sales of medical marijuana is a whole stack of wacky weed being smoked to ease and alleviate the pain and trauma associated with illness, injury and disease.

The State Board of Equalization, those pencil pushers responsible for deciding who pays sales tax, has determined that dispensaries for medical marijuana are not exempt from paying sales tax. In fact, the article in the LA Times makes the suggestion that some of these dispensaries have been a little on the recalcitrant side in not paying as they should be.

If you are wondering why I am writing about this, then here is the point. I have argued for some time that it is about time that governments made a judgment call on marijuana. If it is argued that tobacco is suitable for sale  in spite of increasing amounts of evidence on how bad it is for one's health and the burgeoning flow on costs of providing medical treatment to smokers, then similar arguments can be made for the good ol' 'Mary Jane'.

Perhaps if the state regulated the marijuana trade, there may be a decrease in marijuana related crime. It removes the black market for the product and allows it to be taxed. If governments do not want people to be able to afford it, then tax it at a high rate. In Australia the tax on cigarettes is pretty high. As I was lining up to pay for petrol today, the young woman in front of me was buying a pack of cigarettes. I thought cigarettes were expensive but I did not realize they were like AUD 15+ for a pack of 25.

I am definitely not advocating smoking here. What I am arguing is that there is no common sense in allowing tobacco and alcohol to be legal while other similarly harmful products such as wacky weed are illegal. If people choose to harm themselves by ingesting products that are known to be harmful to them such as tobacco and alcohol (in excessive amounts) then why not allow people to make those similarly bad choices and tax those products as well?

To each their own, I guess.

Bank Century, Bailouts, Quorum, and Libel: Need or Diversion?

No apologies on the long-winded nature of this post. Some will find it interesting and some will be bored to snores.

The Bank Century issue is one that has lingered and lingered, and will seemingly linger some more. It is an interesting political issue in the sense that so many are staking so much on "the case" being resolved. However, the issue, at least for some, for a long time, has been whether or not there is in fact a case to be resolved.

The previous hearings on the "scandal" presumably saw most, if not all, of the pertinent information revealed and placed onto the record. However, it would seem that Golkar, under the auspices of the one and only Aburizal Bakrie, alleged artful tax-dodger, that there is more to the Bank Century scandal than meets the eye. Therefore, Golkar is pushing hard for a full-scale inquisition to re-ignite the Bank Century case in the public arena. The cynics among us will surely not miss that Bank Century will serve as an excellent foil for the immediate aftermath of the Gayus debacle which would have seen some focus return to the Bakrie family and their business accounting practices. A diversion? To each their own.

The question then becomes: "Is there a need for the Bank Century matter to be replayed and re-tried in the court of public opinion through a long and drawn out parliamentary process?" On information currently available and the information that wended its way into the public domain the last time around, the answer is no. Any further inquisition is a waste of time and tax-payers money. Yet, perhaps another round of Bank Century frivolity can put this case to rest once and for all.

A point that must not go unnoticed is that the case has ramifications for the 2014 presidential elections. So, in no uncertain terms much of the desire to keep the Bank Century scandal running is nothing more than cynical political electioneering and an attempt to remove possible challenges to the status quo. Here is a scenario that not a lot of people are talking about yet, but they will.

Sri Mulyani Indrawati, the former Finance Minister and current Managing Director of the World Bank Group will undoubtedly be a target of Golkar in its inquisition. The reason is that Aburizal Bakrie has an axe to grind and she is perceived as a threat to him and his political aspirations. Indrawati has the added value of being perceived as "clean". Clean in no other sense of the word than free of the taint of corruption. The point of the Bank Century scandal is a cynical effort to taint her with the stench of corruption that has and continues to permeate to the core of Indonesian politics.

Aburizal Bakrie wants to be president and Indrawati has the credentials to stand in his way. In fact, there are many who believe that she would make a good president of the Republic of Indonesia herself.

But, Indrawati aside, there are others who can be tainted by the brush of corruption and as such "tarred and feathered" in the public eye. These include the son, Edhie Baskoro, of the current president, SBY. There has been an equal amount of 2014 presidential election talk that the democratic party are looking at cementing the Yudhoyono family political dynasty by either anointing the First Lady, Ani Yudhoyono, or Edhie as the successor and rightful heir to the big chair, RI-1.

Therefore, the current libel case being played out in the Central Jakarta District Court has much relevance to those aspirations of the Demokrat Party and Edhie Baskoro himself. Edhie along with Djoko Suyanto (Coordinating Minister for Legal, Political, and Security Affairs), Andi Mallarangeng (Minister for Sport), and Hatta Rajasa (Coordinating Minister for Economic Affairs), have launched a libel action against Mustar Bonaventura and Ferdy Simawun.

Bonaventura and Simawun are from a group called Bendera (Benteng Demokrasi Rakyat / People's Defense for Democracy) (Benteng is a fort and it is used here in the Alamo sense of being the last holdout against the invaders that are all around them. Bendera is also the Indonesia word for Flag). The group is oft described as being an ultranationalist youth group whose first real moments in the public eye came with calls to destroy Malaysia.

Bonaventura and Simawun were at the forefront of claims that Edhie and the others were the recipients of almost USD 200 million in kickbacks from the Bank Century scandal. Aside from Edhie and the others, the implication was that these kickbacks were used to fund others as well and hence the corrupt monies flowed to SBY and others in his inner circle, thus tainting them all with corruption.

The Demokrat Party and some of the other members of the governing coalition have been quick to point out that they are going to try and thwart any re-opening of the Bank Century scandal. However, there are a couple of "problems" on that front. The Constitutional Court recently lowered the numbers necessary for parliamentary quorum to be achieved in order to trigger debate from 3/4 to 2/3. In simple terms, the 26% of the seats that the Demokrat Party held in the House are no longer sufficient to ward of any public pronouncements by the parliament on issues that the Demokrats find striking a little close to home.

Nevertheless, if Golkar was dead set keen to tarnish the reputations of as many political opponents as they can, then they should be channeling much of their attention to the Central Jakarta District Court in support of Banventura and Simawun. They could conceivably be doing this out of the public eye.

The first trial hearing in the libel case was a mess. It was a mess because Bonaventura and Simawun refused to enter the court until their supporters were allowed to be seated in the court for the hearing. For some reason this was permitted. Chaos was almost certain to follow. When Bonaventura and Simawun were finally brought to court and seated for the opening salvos, it was not long before the proceedings degenerated into shouting matches between supporters and witnesses with judges trying to keep order. In the end, the judges ordered the chamber cleared of Bendera supporters, at which point Bonaventura and Simawun left the building with their lawyers in toe. They left because of the inherent unfairness with which their supporters were being treated.

Seriously though, I have no problem with supporters being present, but there are rules and etiquette to be observed in a courtroom whether you like it or not. One of those rules is that there is to be civility, which means that the judges were well within the bounds of fairness to remove unruly supporters.

Nevertheless, unruly supporters aside, the case is an excellent opportunity to put on the public record all and sundry with respect to evidence of the corruption linked to the Bank Century case. In that sense, like it or not, the Bank Century scandal is not done and any dirty laundry, if it exists, can certainly be aired in a libel case like this one.

The reality for Bonaventura and Simawun is that merely getting Edhie and his cohorts up on the stand and asking them whether or not they took the kickbacks is not going to "cut the mustard". The only way that the defense will corner any of these men into confessions is to overwhelm them with the truth of the allegations that have led to the libel petition being filed in the first place. This was evident in the short proceedings of Thursday when Suyanto sat in the witness chair.

Saor Siagian for the defense asked Suyanto whether or not he had received Bank Century funds. Suyanto's simple response was he was not involved in the case. The only way that Siagian can resolve this good ol' Mexican standoff is to have a little more ammunition left in the gun. There needs to be a magic bullet that ties all these claims together and proves that kickbacks were paid. If not, then Siagian has a hard road to hoe that is going to end up with his clients being found to have committed the offense as claimed.

And, this is where Golkar and other Bank Century conspiracy theorists can help Bonaventura and Simawun. Simply, if they have anything like hard evidence as opposed to hearsay, innuendo and the odd creative thought process, then now would be the time to put it out there.

But, getting back to where we started; a need or a diversion? You be the judge!

Indonesia vs. Gayus...

I will leave it up to you to decide which one is Indonesia and which one is Gayus Tambunan. Or is this RIM and Tifatul Sembiring (TitS)?

Is RIM really going to get away with the cheese?

Thanks to Enver Arslan who has these stop photography images on his posterous page. And, also, thanks to @BrettMcGuire for letting me know about these amazing photos.

Super Gayus...

It is a little hard to know whether to laugh or cry when reading about the exploits of one Gayus Tambunan.

Gayus Tambunan is a mid-ranking tax official who was arrested for corruption relating to the extortion of trillions of Rupiah from a whole raft of Indonesian conglomerates where the Bakrie family figured prominently. The plan was that this young man would roll over and rat out all those that he had worked with in this elaborate scheme.

The outcome was to be the shining light of the President's, SBY, fight against corruption. Instead, it has been a complete farce that has seen Gayus, dubbed as Super Gayus by The Economist, take Indonesian law enforcement on a world-wide ride taking in sites such as Singapore, Thailand, Macau, and even some more local sites in Bali (including a trip to the Commonwealth Bank Cup Tennis Tournament).

The ever-reliable and most knowledgeable Treespotter has an interesting analysis, and an enjoyable read, over at his place. I would encourage people to read the Treespotter's take on this matter and a whole stack of others that he has blogged about, insightful.

The laughing and crying angles on this case relate purely to watching law enforcement and elected officials try and explain these shenanigans away by passing the buck. If there was ever a case of "pass the hot potato" this has to be it. What has become painfully clear to more and more Indonesians is that the battle that they are waging against corruption is far more difficult than they ever imagined that it might be. To say corruption is endemic is, in light of the Tambunan case, an understatement.

Yet, the case is exposing the people who most Indonesians are relying on to fight this battle as complete incompetents that perhaps should be facing charges themselves rather than holding down positions of authority  and influence. At best some of these individuals need to be handing in their resignations en masse.

For example, the Minister for Law and Human Rights, Patrialis Akbar, in an attempt to make himself look good and to deflect any unwarranted attention from his Ministry decides that he must categorically deny that the possibility that Tambunan traveled overseas on a fake passport was possible.

After all it is the immigration department that would have had to have had a hand in issuing a fake passport and that is an area under his jurisdiction. Sadly, as the picture above shows, the man was able to get a second passport in a false name and was seemingly able to travel with ease to the places that the media is now claiming that he did.

I guess what is becoming most surprising to me now is why this story did not break some time ago. Let's face it, the biggest ace in SBY's "war on corruption" managed to spend less than a week in his cell over a four month period. How is that no-one noticed this until now? Perhaps this says something more important about the battle ahead. Perhaps it says something more important about the President and his minions that have been tasked with fighting this battle.

It seems that the President, his minions, and other law enforcement officials can only say so many times that "we don't have to worry Indonesians are too stupid to see through this" before the good citizens of Indonesia rise up en masse and say "hold on a second, we are not stupid, we will not tolerate incompetence any longer, we want change - change that we can not only believe in, but change that gives us real and tangible benefits". Indonesians are not stupid, but this will require Indonesians as a whole to take a long hard look at themselves and say "enough is enough!"

Indonesia really does deserve better than SBY!

Aburizal Bakrie: Defamed?

Has Singapore come to Indonesia? The way of the Singaporean political elite is to sue their political opposition into oblivion by abusing defamation laws. Perhaps, Aburizal Bakrie has realised that Indonesia defamation laws, both criminal and civil, allow for Indonesian politicians to do the same.

The recent reporting of an alleged meeting between Gayus Tambunan and Aburizal Bakrie in Bali during a recent tennis tournament has struck a chord with the man behind the Sidoarjo mud extrusion. Gayus was the point man on a tax avoidance racket that included a number of Bakrie companies. The racket saw tax obligations lowered and mechanisms put in place to ensure that the government lost any challenges that it made against the assessments.

The racket worked well for a while, but it has seemingly begun to come unstuck. Needless to say there are a few nervous people floating around the circles of the political elite as they wonder just how much Gayus knows and just how big the bucket of crap is that he has to spill. This is particularly so if the Corruption Eradication Commission (KPK) gets involved. So, it is within this framework that a meeting between Gayus and Aburizal Bakrie appears believable.

And, truth be told there would be plenty of people from all walks of life who would like to see Bakrie come unstuck and get shafted in the most figurative of senses, then again there are probably a few who wouldn't mind seeing that happen in a literal sense either!

But I digress. Aburizal Bakrie has decided that the news organisations that reported this alleged meeting have defamed him. So, he went to the press council to lodge a formal complaint. It is expected that an official complaint to police will be lodged in the near future.

The five media organisations include Kompas, SCTV, Metro TV, Detik.com, and Media Indonesia. Metro TV and Media Indonesia are an interesting choice as as they are the media vehicles of Surya Paloh. Paloh happens to have been a past challenger to Bakrie's dominance in Golkar.

It seems that Bakrie is a little upset that his denials of a meeting ever taking place were not accepted as given. Therefore, Bakrie is of the belief that because his denials were not accepted as the ultimate truth that he has been defamed because the media is guilty of character assassination. The man is on a mission to clean up the media which he believes has degenerated into outlets purveying lies and spin-doctoring the truth to turn the public against him.

It will be interesting to see where this latest crack at criminal and civil defamation laws goes.

(Photo courtesy of Antara)

Gayus Tambunan & Aburizal Bakrie in Bali...

If anyone was doubting whether Gayus Tambunan, tax official extraordinaire, and Aburizal Bakrie, [alleged] Tax Evader, met in Bali recently during the Commonwealth Bank Tournament of Champions Tennis, then wonder no more. Here is a photo of them together. It is pretty obvious the man in the wig is Gayus, but the man in the jilbab I would never have picked for Aburizal Bakrie if someone did not tell me it was him.

I guess when your main man in the tax office gets jammed up for helping people avoid their tax obligations then it is a pretty good certainty that one would like to know what he knows and get your respective stories straight.

Ho hum...

(The photo is not mine. It came via Facebook. If the original owner wants credit for it, then let me know, as I am happy to give it where it is due)

The Indonesian Economy in 2011 -- 8% Growth

The fun and games have begun in terms of promising the world. Jusuf Kalla (photo courtesy of Viva News and showing the current Vice President's plan for balancing the budget) has promised the Indonesian Chamber of Commerce and Industry (Kadin) that if he is elected president in the upcoming presidential elections that his government will deliver economic growth of 8% per year starting in 2011.

However, what is more interesting is the probable means that are to be employed in funding this proposed growth. According to Kalla 8% growth can be achieved because his government would be decreasing state spending (read slash already limited public spending) slashing public spending is most likely to impact most heavily on the poor and those less able to absorb any cuts to public spending.

The second part of the plan is a progressive tax system. It is unclear whether the intent here is to broaden the tax base or ramp up the amount of tax paid by higher income earners or simply better collection practices through enhanced enforcement of the current code. Nevertheless, it is unclear how investors or both domestic and foreign origins will feel about bearing a greater tax burden.

The next plank of the 8% growth platform is a decrease in fuel subsidies. Now, this is always a winning policy amongst the masses, not! However, it seems that Kalla believes that the conversion program from kerosene to gas has worked and that any reduction in fuel subsidies is unlikely to draw the negative public reaction that it has in the past. My guess would be that he might need to think again on this one. That is not to say I am not against the idea of a continual reduction in fuel subsidies, but rather going into a presidential election with this as part of one's election platform is risky at best and silly at worst.

The rest of the measures appear to be linked ot administrative and bureaucratic reforms. The idea of reforming the administration and the bureaucracy is a standard policy platform adopted by just about everyone. However, in the more than 10 years of reformasi to date, it is arguable how much the regimes of Habibe, Gus Dur, Megawati, and Yudhoyono have delivered on reform of the administration and bureaucracy platform. Personal experience on this front would suggest very little at the lower levels of the chain.

I guess if you are inclined to believe Kalla and his arguments for 8% growth then you should vote for him and then if enough people are convinced of his claims then you can wait and see until 2011 and see if he delivers.

My guess is though that people will still choose the incumbent president and his new vice-presidential candidate. SBY needs to hope that not everyone who supports him thinks he is a shoe-in and actually get out to vote. Don't you just love a potential upset?

Income Tax Bill -- Passed

This is an updated and expanded version of an earlier post.

Overview

The amendment of the Income Tax Law has been in the pipeline for some time and as is the Indonesian way of legislation, important bills tend to have myriad of issues identified within the proposed provisions. The list of problems identified with the amendments runs to some 770 issues in this case. This list of problems ensures that debate is long and passage time even longer. It also meant that Commission XI of the House of Representatives (DPR) and the Work Committee set up to resolve these issues had plenty of work to do.

Passage
This work was expected to be resolved by the end of 2008 and the amended legislation will be passed by the DPR. However, the DPR has seemed to have made light work of the problems and the Bill was passed by the DPR on 2 September 2008. The general consensus was proved right in that the amendments were technical in nature and did not trigger a significant ideological or policy debate.

Individual Tax Rates
The amendments ensure that there is a reduction in the number of taxation levels from the current five to just four. The maximum rate of taxation will fall from 35% to 30%. Salaries up to IDR 50 million will be taxed at 5%, salaries between IDR 50 and IDR 250 million will be taxed at 15%, salaries from IDR 250 to IDR 500 million will be taxed at 25%, and salaries above IDR 500 million will be taxed at 30%.

Fiscal Tax
The amendments also see the removal of the Fiscal Tax that is paid by residents leaving the country. This will be phased in commencing in 2009 and be in full operation from 2011. The idea of phasing out the fiscal tax is based on the assumption that people will obtain a tax file number in order to be able to take advantage of the no fiscal clause. Therefore, those who already have a tax file number appear to be the most likely to see an immediate benefit from this initiative.

Tax Incentives
Other amendments include incentives for those making contributions to religious activities; incentives for listed companies; incentives for micro, small, and medium enterprises; the taxing of revenue not currently classed as taxable objects (such as the Bank Indonesia surplus), and incentives designed to make Indonesia an attractive destination for both domestic and foreign capital investments.

The amendments are expected to ensure that Indonesia has in place a modern, effective, and efficient tax code that will contribute significantly to national development.

Earlier Versions of the Bill
The only difference of note between the earlier version of the Bill and the one that was passed by the DPR is that the intended insertion of Article 2A did not survive the discussion and debate process and consequently was not inserted into the final version of the Bill.

Amendments
However, for the purposes of review, the new law clarifies or simplifies the following income tax matters:

1. subjects and objects of tax;
2. tax object exceptions;
3. claimable fees;
4. spouses that choose to have a tax payer number of their own;
5. net income calculation norms;
6. non-taxable income thresholds;
7. tariffs;
8. tax avoidance prevention;
9. deductions;
10. foreign tax credits;
11. taxation provisions in the mining and Syariah sectors; and
12. tax facilities for micro, small, and medium scale enterprises.

Corporate Tax Rates
Aside from the benefits that individual tax payers get to enjoy from the amendments, it is worth noting that the government has not ignored corporate tax payers. The current corporate tax rates of 10%, 15%, and 30% will disappear in 2009 in favour of a single corporate tax rate of 28%. In 2010, this corporate tax rate will fall to a flat 25%.

For those companies wanting to go public the new tax provisions provide for a 5% discount on the usual applicable tariff where at least 40% of the shares being offered are offered to the public and subsequently purchased by public buyers.

The government realizes that micro, small, and medium scale enterprises play a significant role in employment and development in the regional areas of Indonesia. Therefore, the recently passed bill recognizes this contribution by providing a discount of up to 50% on the applicable tax rate up to IDR 4.8 billion for gross distribution.

Non-Taxable Objects
As was noted earlier the Government has moved towards phasing out the fiscal tax currently payable by all Indonesians and residents of Indonesia. However, other objects that are no longer going to be subject to tax include student scholarships, financial assistance, educational funds, and research and development. It must be noted that the exemption on research and development taxation is dependent on the excess funding being ploughed back into the research and development program within four years.

Conclusion

It is clear that the Government intends to improve the legal certainty of tax collection in Indonesia. However, this requires that the government tighten enforcement and tighter enforcement requires provisions that are not only clear but easy to comply with.

Indonesian tax payers will be bearing a lighter tax burden in the future and the Department of Finance is of the belief that the lighter the burden the more likely income earners without a tax number are going to register and pay tax. This will increase tax revenue and decrease the numbers of Indonesians not paying their share.

The key will be enforcement. The provisions appear reasonably solid. The only thing standing in the way of the Directorate General of Tax collecting all payable tax is no longer the legislation but the methods used to enforce the provisions.

Army Boots

Keeping with the military theme of the last post, here is one of those "are you kidding me" moments also known as a "WTF" moments. It bothers me that this is a story originating out of Australia. Not least because of its stupidity but because I have a brother who serves in Australia's armed services and I would think that my tax payer dollars that have been taken over the years have been spent on worthwhile things like comfortable and fit for purpose clothing for those people that serve our country while we wrap ourselves in the warm blanket of freedom!

The story goes like this! Australia's armed forces have said that soldiers serving in combat zones such as Iraq, Afghanistan, or Timor Leste are permitted to buy their own combat boots from one of four approved providers in the event that the army issue combat boots are not suitable. The army has recognized that the current issue boot is no longer fit for purpose, particularly in the demanding combat zones that Australian troops find themselves in, and are developing a new boot.

In the interim, the army has said that soldiers may by their own boots and a good pair of boots could cost upwards of AUD 600, which seems like a small investment for what could conceivably be the difference between life and death, literally. Unfortunately, soldiers who do this will not be reimbursed for the cost of the boots they buy.

The Parliamentary Secretary for the Minister of Defence, Greg Combet, stated that the government's position is that the current issued boots are suitable. By the sounds of it he needs to get out a little more and talk to some people down at the Department of Defence because if these boots are so good then there seems to be no need to develop a new and improved pair!

For me, here is the cold hard reality, we are asking these young men and women to lay their lives on the line for us every single day they are in a combat zone and we are debating whether or not the government should reimburse these brave young men and women for a pair of boots, stupid! If you're not going to reimburse them directly then one would hope that a special provision within the tax law would allow these boots to be claimed back through the tax system.

I am definitely anti-war but I am pro-people. If we are going to send people into the line of fire then we have a responsibility to ensure that they are fully equipped and the equipment is fit for purpose. If not, then we must not send them into that danger, for me there are no ifs, buts, or maybes on this one!

Nationalizing Strategic Industries

The Venezuela way of ensuring that it gets the majority of the income derived from its natural resources is to heavily tax foreign companies on the profits made. The oil sector is one of Venezuela's top earning resources and the current tax rates are 50% per barrel when the price of oil is above USD 70 per barrel and 60% once the price per barrel hits USD 110. With the current oil price at almost USD 130 per barrel, Venezuela is projecting revenue of some USD 9 billion a year going forward.

Nice income if you can get it!

This follows 2006 legislation that forced foreign companies to offload 60% of the operations to the Venezuelan Government. What this means in simple economic terms is that for foreign investors the law of diminishing returns is starting to kick in and it is no longer a worthwhile endeavour to invest in Venezuela. The regulatory changes have already forced the arm of two of the world's biggest oil players in Exxon Mobil and ConocoPhillips, both of whom have opted out of their respective Venezuelan adventure.

Exxon Mobil are suing to claim back USD 12 billion that it claims to have lost when Hugo Chavez, the President, nationalized Exxon operations last year. Most commentators would be wishing them luck with that action! Chavez has said that Venezuela is prepared to pay fair compensation to any foreign company affected by the recent round of nationalizations.

Oil is not the only "strategic" industry in the sites of the President. He has recently nationalized the entire Venezuelan cement industry as he says that he cannot rationalize the export of cement when Venezuela is experiencing a housing crisis that might just be averted if sufficient cement was available to the local building industry.

Nationalization of strategic industries is not a new concept and most States have constitutions that permit nationalization to occur with fair compensation to be paid.

I wonder what the investor response would be if Indonesia took a similar root and started to declare specific industries to be strategic and then commenced the process of nationalizing them in the national interest.

Although there seems to be no real interest in Indonesia for nationalization on a broad scale, it is worth noting that some high profile Ministers and politicians are on the record as saying that it is high time Indonesia took a stronger interest in the rape and pillage of its natural resources by foreign companies. The Health Minister, although this would be somewhat outside of her portfolio, has commented recently about the natural resources sector. She has also be adamant that foreigners are trying to exploit Indonesia in respect of the avian influenza outbreak.

Simply, nationalization is not entirely beyond the realm of possibility. It would require a sharp hair-pin turn in current policy, but as I said; this is Indonesia and anything is possible!