PFII Needs Strict Supervision So as Not to Become a Tax Avoidance Gap

Deputy Chairman of the LPS Commissioner Board Farid Azhar Nasution during the Public Hearing (RDPU) of the DPR Committee on PFII in the DPR building, Jakarta, Wednesday (8/7/2026). (ANTARA/Rizka Khaerunnisa)

Guru Besar Faculty of Economics and Business (FEB) Universitas Airlangga (Unair) Rahma Gafmi assessed that the government needed to prepare a multi-tiered supervision of the Indonesian International Financial Center (PFII) so that the region would not slip into just a tax haven jurisdiction that facilitates tax avoidance.

The strict supervision in the Indonesian International Financial Center (PFII) area, according to Rahma, includes preventive, detective and corrective.

"The crucial supervisory mechanism to be prepared is the implementation of economic substance rules. This is the most effective first defense," Rahma said in a written response to ANTARA, as reported on Saturday, July 18.

He explained that the government must require companies operating in PFII to have real economic activities. Companies must have physical offices, an adequate number of local employees, and operational expenses that reflect the actual business activities in the area.

"Entities that are only paper companies (shell companies without real activities) must be rejected for registration or are not entitled to tax incentives," he said.

Rahma also emphasized the importance of transparency of ultimate beneficial owners (UBO), considering that one of the biggest loopholes in tax evasion is the layered ownership structure.

Therefore, a centralized registry is needed. In this case, the government must require the disclosure of beneficial owners in a real-time and transparent manner to tax and financial authorities.

"This UBO data, explained Rahma, must be accessible in an integrated manner by law enforcement and tax authorities to map whether the capital that enters the PFII actually comes from foreign parties or is domestic funds that are recycled (round tripping).

He also emphasized the importance of cross-authority supervision through an integrated supervisory framework, given that tax evasion often involves complex cross-border financial transactions. Therefore, the integration of inter-agency data is very necessary.

According to Rahma, the government needs to build an automatic reporting system between OJK as a supervisor of banking and capital markets, BI as a supervisor of foreign exchange traffic, and DJP as a tax authority.

If there is a suspicious flow anomaly, for example, domestic funds enter the PFII and then come out again as FDI, the system must automatically provide a sign (red flag).

In addition, Rahma encouraged the establishment of a special supervisory unit in the PFII environment that has the authority to access cross-sectoral data to examine the appropriateness between financial transactions and tax obligations.

He also assessed that PFII must comply with international standards set by the OECD and FATF in order to be recognized as a credible financial center, not a jurisdiction that is on the grey list.

Therefore, PFII is obliged to implement Automatic Exchange of Information (AEOI) and Common Reporting Standard (CRS) so that Indonesia can automatically exchange customer financial information with other jurisdictions.

Rahma said the PFII tax system must also be in line with the OECD Pillar Two framework or global minimum tax. Thus, the provision of tax incentives does not open up room for aggressive profit shifting practices.

Rahma reminded the government that it should not provide tax incentives as "blank checks" in the long term. Incentives must be provided through conditional contracts that are linked to the achievement of key performance indicators (KPIs), such as investment realization, the creation of quality jobs, and technology transfer.

Furthermore, the government is considered to need to conduct periodic evaluations of the provision of incentives and have clauses to review, adjust, and even revoke incentives if companies are proven to have tax avoidance practices that are detrimental to the country.

On the other hand, Rahma encourages the implementation of periodic independent audits by internationally reputable audit firms for all entities in PFII. The government also needs to provide a special channel for whistleblowers to report suspicious practices with strong legal protection guarantees.

"The function of supervision will always be a victim if there is no institutional independence. If the PFII Authority has the authority to grant tax or regulatory exemptions, then legal compliance will lose out to the competition of attracting capital," said Rahma.