Indonesian research institute Perkumpulan Prakarsa (Centre for Welfare Studies) has reported that US$142.07 billion of illicit financial flows (IFFs) were facilitated by exports of Indonesia’s six leading export commodities between 1989 and 2017.

These IFFs – through exports of coal, copper, palm oil, rubber, coffee and crustaceans – cost the country US11.1 billion in lost revenue over the same period.

The loss of tax revenue is substantially the result of under-invoicing and over-invoicing in trade in and out of Indonesia.

Under- and over-invoicing

Under-invoicing of exports is used to reduce payments of taxes and royalties in Indonesia the report points out.

Meanwhile, over-invoicing of exports aims to reduce Value Added Tax (VAT) payments because the Indonesian government provides an export incentive by not imposing VAT and reducing import duties on export-oriented goods.

Coal, palm oil and rubber

The results of the study showed that the largest state losses were caused by under-invoicing export practices related to coal commodities. Losses amounted to US$5.32 billion in the period 1989-2017.

Under-invoicing of palm oil and rubber exports caused US$4 billion of losses to the state over the same period.

Growing concern

The report also suggests that the value of IFFs is increasing in line with export volumes.

The study says the six leading commodities had a total export value of US$ 35.2 billion in 2017 compared with 1989 when the export value of the six commodities was just US$ 2.1 billion.