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% in April from the same month a year ago, the first on-year decline in the six years of public data records.
The number of credit card transactions, meanwhile, fell by two million in April from a month before, to 23.7 million transactions.
Bank Central Asia, one of the largest credit card providers, saw its transactions fall 15% and card cancellations more than double in April, head of the bank's consumer card business Santoso told Reuters.
"I don't think they're all avoiding taxes, but some did say they feel their privacy disturbed - they're not comfortable," Santoso said, noting most of the cancellations came from self-employed individuals.
Other providers face the same problem, said Steve Martha, chairman of Indonesia's credit card issuers association.
"People should be incentivized to use cards, not penalized," he said.
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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% in April from the same month a year ago, the first on-year decline in the six years of public data records.
The number of credit card transactions, meanwhile, fell by two million in April from a month before, to 23.7 million transactions.
Bank Central Asia, one of the largest credit card providers, saw its transactions fall 15% and card cancellations more than double in April, head of the bank's consumer card business Santoso told Reuters.
"I don't think they're all avoiding taxes, but some did say they feel their privacy disturbed - they're not comfortable," Santoso said, noting most of the cancellations came from self-employed individuals.
Other providers face the same problem, said Steve Martha, chairman of Indonesia's credit card issuers association.
"People should be incentivized to use cards, not penalized," he said.
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