Does
Indonesian tax office need another amnesty?
Darussalam and Adri AL Poesoro
; Darussalam is managing partner
of the Danny Darussalam Tax Center;
Adri A L Poesoro is an economist at the Danny
Darussalam Tax Center
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The government and the House of Representatives seem to have
agreed to explore the possibility of undertaking a new tax amnesty. The
objectives of a tax amnesty, to name a few, are: alleviating the budget
deficit by increasing tax revenues; improving tax compliance and inducing the
repatriation of capital from overseas.
But the success of temporary amnesties depends on a quick,
convincing change in the revenue authority’s behavior. In other words, a tax
amnesty will only be effective if it is unanticipated and supported by
associated regulations and a modernized tax administration, especially on tax
enforcement.
Most experts agree that an unanticipated one-time amnesty,
accompanied by a change in the general tax system, has a promising chance of
success — where success is measured by generated revenue and/or compliance
rates, in the short run as well as in the long run.
Amnesties around the world have varied in the types of taxes
covered, but also to the extent to which individuals should participate in
the program. Some amnesties have allowed those who were already under
investigation or those with tax arrears to participate while others have not.
Like any other public policy, there are costs and benefits of a
tax amnesty program. Tax policy analysts Hari Sharan Luitel and Russell S.
Sobel, in their book The Revenue Impact of Repeated Tax Amnesties (2007)
summarized the benefits as: bringing people back to the path of honesty who
became tax delinquent by mistake; removing the guilty feeling of otherwise
ordinary citizens; an appropriate measure before increasing penalties and
enforcement or the transition to a new tax regime; government credibility;
enlarging the tax base as many taxpayers are brought back into the tax
system; generating both short and long term revenues for the government;
reducing the administrative costs of tax collection and improving tax
compliance by monitoring newly registered taxpayers.
Furthermore, they also analyzed costs arising from the
amnesties, such as: undermining the tax morale such that honest taxpayers may
actually start evading taxes; making people aware of the presence of
noncompliance in the tax system and anticipation of repeated tax amnesties.
Under behavioral economics, taxpayers look for factors such as
fairness, a sense of belonging to the community imposing the taxes and a
belief that taxes received by the government will be used properly to
contribute to improved tax compliance.
If government contributes to making the tax system fairer,
improves taxpayers’ sense of belonging (building their sense of identity with
the larger community) and demonstrates that taxes are being used
productively, tax compliance will increase without any change in economic
incentives (Morris Altman, 2012).
By improving noneconomic incentives, sometimes even reducing the
size of the stick or punishment, tax compliance increases.
Tax administrations in some countries have rigorously conducted
tax amnesty programs with various modifications since the 1980s. India
(1997), Republic of Ireland (1988) and Italy (1982, 1984 and 2001/2002) were
successful in applying their tax amnesty programs. On the other hand, tax
amnesty programs in Argentina (1987) and France (1982 and 1996) were
considered to be less successful, being solely intended to reverse illegal
capital outflows.
Under this amnesty, the French government lowered the tax rate
and abolished the wealth tax.
Almost all states in the United States exercised tax amnesties
with a variety of structures and intervals during the period of 1981 to 2011.
Several countries attempted to stimulate the return of capital by combining
tax amnesties with other structural changes, such as rate adjustments and tax
incentives.
Taxpayers were exempted from taxes of all previously unreported
income that were used for investment and business purposes.
Moreover, to attract capital inflows, the tax institutions set
lower effective tax rates ultimately in sectors where it was easier to move
into the informal economy. For example, South Korea reduced its effective
corporate tax rate from 53 to 27 percent, while corporate tax receipts
doubled as a fraction of GDP (Roger Gordon, 2012).
In Indonesia, the so-called Sunset Policy, an amnesty conducted
in 2008, helped to increase the number of taxpayers by around 5.36 million
and revenues by as much as Rp 7.46 trillion (US$582 million). However, the
program did not have a long-lasting effect on the improvement of the tax
ratio.
Since the Asian financial crisis in 1998, around four major tax
reforms have taken place in Indonesia focusing on the modernization of the
Directorate General of Taxes (DGT).
According to Yond Rizal (2012), the objectives of the reforms
were mainly to create greater public trust in the DGT, more productive and
accountable tax officers and better tax compliance.
It is still undeniable that after more than a decade of tax
modernization and seven years after the Sunset Policy, tax noncompliance and
corruption are still rampant causing major constraints on the effectiveness
and efficiency of tax collection.
In Indonesia, problems with tax noncompliance are pervasive and
cover all economic sectors. During the reforms, the DGT has formulated and
implemented programs and activities to increase taxpayers’ attentiveness and
voluntary compliance, especially for the noncompliant taxpayer, and create
more effective law enforcement.
To achieve the long-term goals of the program, there are some
necessary conditions that must be fulfilled, such as voluntary tax
compliance, better use of information and communication technology tools, to
enhance the ability of the administrator to investigate tax evasion;
increased tax employee capability and capacity; strong political leadership;
positive government rules and discretion; conducive political-economic
conditions; more autonomous tax administration and less political
interference; and synchronization of regulations on tax collection,
investment and other business regulations.
The objective of the previous Sunset Policy in Indonesia was to
widen the overall tax base and increase the tax ratio. President Joko
“Jokowi” Widodo has instructed the finance minister to bolster tax revenues
for the revised state budget 2015 in order to create a more sustainable and
healthy budget.
The President has also shown his capacity and capability to
execute a bold decision like raising the fuel price. This type of behavior is
important to get people’s trust and belief in his future policies and
discretion.
For the case of Indonesia, the design of the next tax amnesty,
if necessary, should not create more tax noncompliance as honest taxpayers
may start evading taxes after the implementation of a tax amnesty.
A well-designed tax amnesty program accompanied by a stronger
system of tax collection has the potential to lead to beneficial results. ●
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