Djalaludin Djaprie Part 2. Why Do Plantation and Mine Owners Own Language Schools in Indonesia? (Guest Post)

That said, your question has a rather convoluted answer and that is part of the advantage to the mining mafia.  An inordinate number of mining/plantation owners have English schools specifically to launder money.  Here’s how:
 
1. Until I posted the tax info, most bule have no clue (at the teacher level, not exec) how the Indo tax system works or what their responsibilities are under the law.  Therefore, the owners can inflate salaries and bonuses without the teachers ever knowing, thus funneling a good amount of cash. If I pay you 10 mil, but report paying you 15 mil, I’ve just made 5 mil disappear.  Same with bonuses, which is the biggest part of the scan, since the law requires them to pay a full month’s salary bonus each year, and most pay little if none of it to the teacher.  More money vanishes.  The tax burden in on the teacher and they pocket the difference scot free.
 
2. These free-standing English schools don’t draw a lot of attention from the authorities, so they rarely get audited or even scrutinized.  So, the schools inflate their enrollments quite a bit, with each imaginary student paying however many millions, and thus funneling a lot of illegal cash into legal channels.  This doesn’t really evade taxes, but it does legitimize otherwise questionable income.
 
3. There are any number of other channels to bury money in schools.  One could inflate the price of a ruko or similar property, then pocket the difference.  Textbook, hardware (desks, computers, etc.) and other prices can similarly be inflated.  Imaginary staff can be hired.  Plant expenses (electricity, water, etc.) can be inflated.  The list goes on.
 
4. Owning a school buys a little legitimacy and good will.  It makes the otherwise cut-throat mining and palm-oil mafia look respectable.  This may not have much to do with hiding cash, but it looks good to public scrutiny, should the occasion arise.
 
Here’s an example:
I hire one real employee and three fake ones.  I pay them 3 mil a month, which puts them in the 5% tax bracket.  I pay their 5% income tax, like a good little employer, using ill-gotten cash that I would have otherwise had to pay upwards of 25% tax on and run the risk of scrutiny by the authorities, since I have to report where that money came from.  So, I’ve saved 20%+ in taxes, legitimized a bunch of black money (this example times however many campuses), and bought a little respectability by running a school.
 
Those are just some examples.  There are other things, like phantom campuses in remote locations (mine/plantation sites), funneling bribes through a school to reduce scrutiny, etc.
 
And finally, the schools are a great way to employ the whole family, set up support companies that simply pay you your own money through other channels, etc.  If the school is set up as a yayasan (non-profit), then there’s room for even more hanky-panky, though most English schools are PTs.  In any case, the tax authorities give schools a wide latitude with a lack of audits and close eye on the paperwork.  This is probably by design (see bribery comment).
 
There’s probably a dozen angles I haven’t thought of, but you get the idea.  One of the biggies though is counting on the ignorance of bule with regard to the tax laws.  If all the teachers started holding their feet to the fire on getting their tax forms at the end of February and questioning every single rupiah reported on them, it would go a long way towards cleaning up the schools and advancing the cause of foreigners trying to live and work here legitimately.
 
Hope that helps.  Keep up the great work

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