Although Indonesia has applied similar programs to the tax amnesty four times (1964, 1984, 2008 and 2015), the scale and impact of these programs were not as significant as the current initiative. Thus, it comes as no surprise that concerns have been raised regarding long-term consequences and the ability of the Directorate General of Taxation to manage the 2016 tax amnesty policy.
The main point of this concern is related to loopholes within the tax amnesty law and whether any additional regulatory framework is needed to minimize these. Moreover, questions have been asked on how to further transform the tax office into a credible tax authority so that taxpayers will favor voluntarily compliance post the amnesty period.
With regard to loopholes, the approved bill is far more comprehensive than the initial 2015 draft; the final bill has additional provisions to ensure that the tax amnesty program is successful. For example, the redemption rate is now contingent on whether assets are repatriated or not. The tax office also requires amnesty participants to submit taxpayer detailed information, which will be stored and used as a reference for future tax obligations.
However, in my opinion, there are at least three further issues to be considered: the tax redemption rate, data provided by tax amnesty participants and the criminal offense discharged by the amnesty program.
The one-off penalty charges are still lower compared to comparable international programs. Indonesia charges a 2 to 10 percent redemption rate on assets owned by tax evaders. Other countries, such as Argentina and Brazil, charge a higher rate; Brazil charges 15 percent on the value of reported assets and Argentina charges 5 or 10 percent. It could be assumed that the tax office aims to invite more repatriated assets and therefore higher tax revenues, yet the rate seems too lenient and is unfavorably low compared to similar tax amnesties.
In relation to the data provided by tax amnesty participants, the tax office requires complete taxpayer information, such as a full list of assets, liabilities and latest tax return. However, one important piece of data is missing: access to a taxpayers’ bank account information. This information is crucial to monitor the movement of a taxpayers’ funds and therefore more transparent tax reporting in the future. Gaining access to a taxpayers’ bank account information is a crucial step to tax compliance and enforcement.
Under a tax amnesty, taxpayers can legalize anything without fear of prosecution or investigation. The law, however, does not specify which criminal offenses are to be whitewashed. As such, it opens up a plethora of possibilities for any money related to corruption, drugs or human trafficking to be discharged. It is clear that we still need specific guidance to deal with the issue.
The issues mentioned above above are add-on considerations for the tax office. The tax office needs to further transform itself to be a credible tax authority.
Before further discussing tax office transformation, it is worth noting that, on its own, a tax amnesty has no direct effect in increasing compliance and long-run tax revenue. To become a successful program and thus improve tax office credibility, an amnesty should be combined with other strategies.
The gross revenue from amnesty can be used to plug the budget hole, especially when the revenue is under achieved and expenditure is rising rapidly. In the mid-term, an effective tax amnesty program is expected to increase the tax base and therefore future revenue collection, as tax evaders are brought into the tax system.
As a tax policy, an amnesty can be considered an equitable measure, because the revenue collected from tax evaders reduces disparity in the effective tax rate.
The tax office should start targeting the big fish and bring this to the attention of the public. This includes well-publicized seizures of businesses owned by renowned tax evaders and equally well-publicized criminal prosecutions.
After targeted enforcement comes conscience. The pubic appreciates inspiring examples. When the sense of justice is revived, attitudes are slowly but markedly redefined. Tax evasion is no longer viewed as a victimless crime. Public service advertising is targeted at changing public attitudes. As such, it is expected that the enemy is no longer the tax collector but the tax evader.
To successfully implement those measures, the tax office needs the full support of all stakeholders. The tax office needs to be backed up by other law enforcement agencies. Better assistance and coordination with the National Police should prevent incidences such as the case in which two tax officers were stabbed to death while collecting taxes from a rubber trader in North Sumatra.
Most of the time, taxpayer data is scattered across several investigative agencies and requires due processing. Lack of data and coordination between the tax office and other investigative agencies such as the National Police, Financial Services Authority (OJK) and Financial Transactions Reports and Analysis Centre (PPATK) adds to the problem and results in data-mining with no yield.
Finally, the tax office’s internal organization badly needs an overhaul. It is well known that the tax office is severely understaffed, with approximately 30,000 officers to manage an astonishing 25 million individual taxpayers and two million corporate taxpayers.
That is an average of one officer overseeing 900 taxpayers, a very high ratio despite the use of information technology in the current tax administration process. The tax office has indicated that it requires at least 95,000 tax officers to be able to optimally manage the tax administration process and thus achieve its tax revenue target.
Hopefully, the plan to establish a semi-autonomous revenue agency can be realized promptly so as to rejuvenate and empower the tax office.
Penulis: Gatot Soepriyanto
Kategori:Tax Amnesty in English