Singapore-based wealth managers, already under pressure from a global move towards tax information sharing, face a more immediate threat as Asian countries including Indonesia and India look to chase undeclared money in the low-tax city state.
A global crackdown on tax evasion launched during the 2008 financial crisis has already forced Switzerland and other European offshore hubs to surrender their prized bank secrecy.
Like those centres, Singapore has committed to automatically start sharing information with foreign tax authorities from 2018, in line with an agreement signed by more than 51 countries last year that seeks to put an end to tax evasion.
But Singapore banks face a more urgent challenge.
Indonesia, Singapore’s main source of wealth assets, is considering offering a tax amnesty to individuals willing to repatriate funds from abroad - targeting $225bn Jakarta says is parked in Singapore alone.
“Indonesia accounts for 30-50% of business for private banks in Singapore,” a Singapore-based banker at a top global wealth manager told Reuters. “Clients are worried and asking about this, (while) accounting and legal firms are pitching to help clients structure their transactions,” said another banker.
Both declined to be named due to client confidentiality rules. The second banker said one client was considering whether to pass his wealth directly to one of his children, who is in the process of taking Singapore nationality.
Singapore, Asia’s second-largest offshore centre by assets behind Hong Kong, has thrived as a banking centre due to its political and economic stability, low taxes and rule of law. It manages $470 billion of private client assets, Deloitte data show.
Singapore’s central bank has said it has a rigorous regime to combat money laundering and is ready to take tough action if there are breaches. Sources said Monetary Authority of Singapore (MAS) officials have been asking private banks if they have heard any client concerns about the exchange of information mechanism. The MAS didn’t comment.
The finance ministry noted that Singapore would need to sign bilateral agreements before any automatic data sharing, and those deals would depend on partner countries having a “robust” legal framework to maintain information confidentiality and “confine its use to tax purposes”, a ministry spokeswoman said.
Seeking to recoup funds it first bled in the aftermath of former president Suharto’s government, Jakarta is looking to introduce a tax amnesty, but has given no timetable for this.
“The idea is to first prepare the legal framework,” Suahasil Nazara, who heads the fiscal policy office, told Reuters.
The planned amnesty, private bankers say, is modelled on a successful but controversial Italian tax scheme that helped Rome recoup billions of euros unlawfully parked in Switzerland against the payment of a modest penalty.
This system, which was criticised for allowing tax evaders to come clean without too much pain, is a faster way to recover funds than wading through a myriad of tax and bank data.
India, too, is trying to turn up the heat on an estimated $340 billion of undeclared wealth by its residents.
