Challenges for new tax office chief Gatot Soepriyanto   ;   A lecturer at Binus University and is currently pursuing a PhD at Monash University, Australi;. His research is in the area of corporate tax avoidance

JAKARTA POST, 10 Februari 2015

                                                                                                                                     

                                                

Amid the political hurly burly and controversy surrounding the nomination of Budi Gunawan for National Police chief, President Joko “Jokowi” Widodo decided last week to select Sigit Priadi, a career tax official, as the new directorate general of taxation (DGT). The appointment did not attract much public attention even though Sigit and his team are responsible for collecting about Rp 1.30 quadrillion (US$104 billion) in tax receipts, which make up 75 percent of the total state budget revenue this year and represent a 20 percent increase from last year. The new DGT chief was selected through an open and competitive selection process. The high expectations that are put on this new official are clearly seen through the ambitious target set for the DGT for the next five years to increase the tax ratio (tax revenues as a percentage of gross domestic product) from about 12.5 percent now to 16 percent in 2019. The ambitious target made it imperative for the DGT to improve its administrative capacity and organizational capability. But it is the acute lack of capable human resources that has always been the biggest challenge for the DGT. First of all, the DGT has always been severely understaffed because it has only 30,000 tax officers to serve 2 million corporate taxpayers and 25 million individual taxpayers or one officer serving 900 taxpayers, which is a very high ratio despite the advantage of information technology. The DGT has suggested that it should have at least 95,000 tax officers to be able to optimally manage the tax administration to achieve its tax revenue target. Acute lack of capable human resources is always the biggest challenge for the DGT. Second, to improve the tax administration’s institutional capacity, a better training system is needed to upgrade the skills of tax officials, especially because the competence and skills of tax officers across the country vary widely from one office to another. Nearly half of the DGT staff have not completed tertiary education, while 14 percent have not even completed secondary education. Given the low level of taxpayers’ voluntary compliance and the complexity of business structures, there is an urgent need to upgrade the quality of tax officers if the DGT is to achieve its collection target. Finally, there is mismatch between the ambitious revenue target and the acute lack of personnel. No wonder, then, that the tax office has been perceived to be the poorest performing directorate general within the Ministry of Finance. Public opinion polls also often cite the DGT as one of the most corrupt public institutions. The DGT therefore has been under stricter public scrutiny both from the taxpayers and also the law enforcement agencies, such as the Corruption Eradication Commission (KPK), especially after several senior officers were caught in big corruption scandals. The corruption scandals certainly have damaged the public trust in the DGT. This unfavorable condition made the job of tax officers much riskier, often prompting them to switch their allegiance to other organizations, including corporations and local governments. This is a regrettable loss to the DGT. The three issues should be the main working agenda of the newly appointed DGT chief before he can focus on DGT’s deliverables. Issues in tax administration need to be addressed before going all out in netting taxpayers. The latest report from the World Bank’s “Paying Taxes” survey ranks Indonesia as 160th out of 189 jurisdictions with respect to the ease of paying taxes, down two rungs from last year’s survey. Some viable solutions to tackle the problems have been discussed by policymakers and scholars. One idea is to grant the DGT autonomy or flexibility in human resources management. Currently, the regulations governing DGT make it extremely difficult to fire officials, despite inefficiency or corruption issues. On the other hand, bureaucracy within the public service system often makes the recruitment process very slow, resulting in unnecessary vacancies for important positions for months on end. By giving more autonomy to the DGT in human resource management, covering such aspects as recruitment, dismissal, promotion and rewards, managers will have the freedom to manage their staff in a businesslike manner. This is a performance-driven model for human resources management. In addition, with the freedom to determine staff remunerations, the DGT will be able to decide the level of staff pay and narrow the range between top and bottom grades, which will enable DGT to attract and retain good talent, particularly those with key skills such as accounting and IT. As the biggest contributor to the state’s budget, flexibility in managing its own budget without constraints from public service budgeting regulations is also needed for the DGT. This includes giving the organization control over its buildings and equipment, instead of being dependent on the public works department. Freedom to use its own judgment in managing the budget accompanied with accountability will help DGT unleash its potential to achieve the objectives of the organization. ●