TAXATION AND TAX MANAGEMENT

Time after time with the increasing need of state’s expenditure and the expanding Government’s organization at central and regional level, where the number of personnel increased accordingly, the need for increased tax income became inevitable.

Today target of tax revenues was increased to above Rp 1,000 trillion of the total volume of APBN State Budget of Rp 1,600 trillion. A figure as high as Rp 1,000 trillion was no big deal for a country of enormous expanse, abundant natural wealth and vast population as Indonesia.

This year, supposedly tax revenues had exceeded Rp 1,500 trillion, but due to scarcity of data, limited info-base and inferior control system and high degree of corruption, the number of tax subjects organizations or individuals increased only thinly year after year and the total tax income was by proportion still too small against the nation’s GDP.

Tax revenues of 2013 was targeted at Rp 1,179 trillion, an increase of 12% against 2012. With target of that size, tax ratio Increased from 11.9% to become 12.7%. With additional income from natural resources and regional contribution, Indonesia’s tax ratio this year was around 15.8%.

With the same calculation base, tax ratio in Malaysia was above 18% and in some Asean countries had reached above 20%. With inclusion of regional income and natural resources tax ratio in Japan was above 28% and in South Korea 27%. Indonesia’s ;ow Tax-to-GDP ratio was only due to increased GDP but also meager increase of tax income which was not in parallel with Indonesia’s economic growth.

Many micro and small-business companies had not paid taxes, many of them were even not registered as tax subjects. Many medium and big companies had not paid their taxes obediently and correctly. Many big companies make eyes with tax collectors and tax consultants to play the trick of tax manipulation.

Gradually the nominal amount of tax revenues kept increasing from Rp 425 trillion in 2004 to become Rp 885 trillion in 2012 and was projected to pass through Rp 1,100 trillion next year. For the past seven years tax revenues increased only by twofold. If there were no leaking, and there was expansion of taxpayers’ base, improvement in taxation system, better control, then tax revenues supposedly increase by 3.5 times in seven years.

Low tax payment came from individual tax subjects (WP). The number of individual WP was posted at 21 million people while organizations around 2 million. If companies on the average employed 25 workers, the number of individual WP should be at least 50 million people. In addition to that there were still around 20 people who were taxworthy. The 70 million WP was reasonable because it was in proportion against the number of middle class in Indonesia.

Low tax revenues was also caused by leakings. The case of manipulation which involved tax collectors who were accused of receiving bribery was only the peak of the big iceberg of the corrupted taxation system in Indonesia. Many similar cases which were not unveiled when accumulated came to the amount of tens of millions of Rupiah a year.

To maximize tax income, it seemed right if the Directorate General of Tax (DJP) aggressively launced a number of programs to expand taxpayers database and increase tax revenues. Tax census must be extended to all provinces to accurately compile data of WP, organization or individuals. These were the right step which deserved support.

DJP was also demanded to step up application of Information Technology to minimize any possible collusion another fraudulent potentials. Direct personal contact between tax collector and tax subjects must be minimized and eventually be totally abolished. All tax invoices shall be done by on-line so possible leakings could be prevented.

In case of any dispute or protest, communication and exchange of information could be done the electronic way, if there was still no meeting point the solution would be to bring the case to the Tax Court. The process of tax judgment should be fair and honest so tax subject needed not to be afraid of being bluffed by tax collectors.

The whistle-blowing system being applied should better be continued. Thumbs up for Tax Dept (DJP) officials who encouraged tax collectors to spy one another and report any tax collector who tried to play any trick. This system, if properly applied, might reduce leakings and minimize cases of corruption.

About reformation of the bureaucracy, the reformation within the circles of the Ministry of Finance should better not be confined to betterment of remuneration or salary payment. Salary of civil servants at the Ministry of Finance which had been increased twice as much might not necessarily be followed by better performance. The was a great challenge for the ministry of Finance and the Directorate General of Taxation. With tax-to-budget ratio of above 70%, reformation of the bureaucracy may not lose steam or officials acting merely by rethorics.

It should be understandable that reliant on tax revenues was so great in times when income from other sources was relatively not reliable. The Government might expect dividend from State Owned Enterprises (BUMN) but it bounched back as demand for caoital strengthening for BUMN whereby to compete against private companies.

The storming demand to lower dividend payout ratio from the previous 50% to around 30% also accounted for the difficulty in fulfilling states revenues. The result was that state budget was always in a state of deficit and it was hard to set up a balanced budget.

On the other hand tax subjects would gladly be obedient taxpayers as long as the fund was spent on infra-structure building to increase national efficiency and productivity. Taxpayers were reluctant to perform their duties if cases of corruption at the Tax Dept. were let to happen. They thought that it was not worthwhile to pay taxes if part of the money were pocketed by corruptors.

The utility of tax revenues mostly for capital expenditure such as infra-structure building would generate a broad impact on the nation’s economy. If this were actually executed the target to attain tax revenues up to Rp 1,500 trillion making a tax ratio of at least 17% could hopefully be attained in not too distant future. Meanwhile the public were called to be good taxpayers and at the same time participate in the controlling process.    

 Business News - September 7, 2012