New credit card scrutiny sends Indonesians back to cash

Sun May 29, 2016 7:16pm EDT
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By Gayatri Suroyo and Fransiska Nangoy

JAKARTA (Reuters) - Indonesia's plan to track all credit card transactions in a bid to crack down on rampant tax evasion is pushing people back to cash, stifling government efforts to track illicit money flows.

A new government decree requiring credit card providers to submit transaction details - including customer and merchant identities - to the tax office as of May 31 appears to be spooking consumers with card activity falling in April.

The return to paper currency in the already heavily cash-based economy is a temporary setback not only for the government's drive to boost tax revenues but also its fight against money laundering, corruption and terrorism finance.

And for consumers wary of increasing scrutiny on their transactions, a preference for paper means carrying around envelopes full of hundreds of bank notes in a country where the largest currency denomination is 100,000 rupiah.

Erwin Karya, a Jakarta-based associate director with real estate agent Ray White, said clients were now starting to use cash instead of card to pay property booking fees - non-refundable deposits used to book properties before home downpayments.

"People don't want to risk swiping credit cards for booking fees," he said.

"For 10-25 million (rupiah), they just pay in cash for the booking fee."

Indonesian central bank data showed credit card transaction values dropped 4 percent in April from the same month a year ago, the first on-year decline in the six years of public data records.   Continued...

A general view shows the headquarters of Indonesia's tax office in Jakarta May 26, 2016.REUTERS/Iqro Rinaldi