JAKARTA – Amidst the euphoria surrounding the establishment of the Indonesian International Financial Center (PFII), which is claimed to be able to rival Dubai or Singapore, the Indonesian Cyber Media Union (SMSI) has warned the Indonesian House of Representatives (DPR RI) of potential legal loopholes that could harm the country if not addressed early in the regulatory development phase. Ahead of the planned ratification of the PFII Bill on July 21, 2026, SMSI is urging the PFII Bill Working Committee (Panja) to include a clear regulatory ring-fencing clause as part of the region’s institutional design.
Results of the SMSI Focus Group Discussion (FGD) in Bali (July 10, 2026), Dr. Agus Syabarrudin stated that without clear oversight and restriction mechanisms, companies are at risk of regulatory arbitrage, choosing to reside in a PFII solely because they receive looser regulations, lighter capital requirements, or more favorable tax treatment.
This situation risks turning PFII into a tax planning hub, triggering base erosion, where corporate profits are recorded in PFII while actual business activities and economic value creation take place outside the zone.
Therefore, SMSI provided several inputs to the PFII Bill Working Committee so that these provisions are emphasized in the bill and its implementing regulations.
First, implementing a substance requirement that requires every company obtaining PFII facilities to have real economic activity, operational offices, human resources, and business functions actually carried out in the PFII zone.
Second, restricting domestic companies from transferring their legal domicile, bookkeeping, or profit recording to PFII solely to obtain tax or regulatory benefits, without any real economic activity.
Third, strictly regulate the data exchange mechanism and joint supervision between the PFII authorities, the Directorate General of Taxes, the Financial Services Authority, Bank Indonesia, the Financial Transaction Reports and Analysis Center (PPATK), and other relevant agencies to prevent tax evasion, money laundering, and misuse of the zone’s facilities.
Fourth, include anti-abuse provisions that give regulators the authority to reject or revoke PFII facilities if they discover practices that abuse legal schemes, taxation, or corporate structures that contradict the zone’s objectives.
Fifth, align all PFII provisions with international standards, including the principles of tax transparency, the OECD Base Erosion and Profit Shifting (BEPS), and the recommendations of the Financial Action Task Force (FATF) to maintain PFII’s credibility in the eyes of global investors.
“Urge the relevant authorities to design strict restrictions. Domestic companies should not be allowed to transfer their books to the PFII zone simply to avoid national taxes without being accompanied by real economic activity (substance requirements),” stated one of the SMSI FGD recommendations, delivered by Dr. Agus Syabarrudin, Deputy Chairperson of SMSI’s Economic Development and Foreign Partnerships.
SMSI emphasizes that the success of the world’s international financial centers is determined not only by fiscal incentives and ease of doing business, but also by legal certainty, good governance, and credible oversight. Therefore, the Working Committee for the PFII Bill is expected to make the principles of ring-fencing, transparency, and substance over form the main foundations in drafting regulations, so that PFII can attract global investment without compromising Indonesia’s fiscal interests and legal sovereignty.
Daffa Ibrahim
