Tax Issue 2024: National Revenue Agency?

By: Hepi Cahyadi, the Directorate General of Taxes officer

Disclaimer: In order to keep public servant neutrality in general election, this article is not intended to support/discredit any candidate. The article cannot be quoted, partly nor entirely, to be utilized for any general election campaign material.

The Pew Research Center unveiled key issues for the 2020 election in a report released on August 13, 2020. Approximately eight in ten (79%) registered voters identified the economy and taxation as the most crucial topics influencing their voting decisions in the 2020 presidential election. Twelve key issues were examined in the study.

During the 2020 US election, Democratic presidential nominee Joe Biden stated, "If you elect me, your taxes are going to be raised, not cut." While this statement is accurate, it has been distorted to suggest that the former vice president intends to increase taxes for all Americans, rather than specifically targeting those earning more than $400,000 annually. The issue of wealth disparities is widely discussed in US society. The economic and tax policies under Donald Trump's direction appear protectionist, lack transparency, and tend to favor the affluent and business people.

The General Election Commission has nominated three sets of candidates for the 2024 presidential elections. The discussion on separating the Directorate General of Taxation (DGT) and Customs from the Ministry of Finance has resurfaced. Two pairs, Anies-Muhaimin and Prabowo-Gibran, are revisiting the issue, while Ganjar-Mahfud is approaching taxes from a law enforcement perspective.

In the document outlining their vision, mission, and work program titled "A Fair, Prosperous Indonesia for All", Anies-Muhaimin have integrated the establishment of a new National Revenue Agency. They underscore the significance of ensuring integrity and accountability in these institutions, aiming to achieve this through a well-coordinated distribution of authority within the institution.

Additionally, Anies-Muhaimin has set ambitious targets for increasing state revenues, intending to accomplish this by expanding the revenue base and improving tax compliance. Their goal is to raise the tax ratio from 10.4% in 2022 to a range of 13.0% to 16.0% by the year 2029.

Meanwhile, in their vision and work program document titled "Together Advancing Indonesia," the Prabowo-Gibran pair has included the formation of this agency as part of the eight rapid-result programs designed to elevate the state revenue-to-gross domestic product (GDP) ratio to 23%. This is outlined in their comprehensive plan.

Indonesia's low tax rate is confirmed by data from the Organisation for Economic Co-operation and Development's (OECD) report "Asia-Pacific Revenue Statistics 2022". According to the report, the average tax rate for Asia-Pacific countries in 2020 was 19% of GDP, while the average tax rate for OECD countries was 33.5% of GDP. The OECD report indicates that Indonesia's tax rate stands at 10.1% of GDP, a figure surpassing only that of Bhutan and Laos, each recording a tax rate of 8.9% of GDP.

Best Practice

In Singapore, the Inland Revenue Authority of Singapore (IRAS) is mandated to serve as a representative of the government, offering services in tax and corporate payment management. It operates as a semi-autonomous tax authority that does not directly report to the Ministry of Finance. Nevertheless, the agency is closely overseen by a supervisory board chaired by the finance minister.

In Japan, the National Tax Agency (NTA) was established in 1949 as an external organization of the Ministry of Finance. Additionally, the National Tax College provides training for tax officials, and the National Tax Tribunal functions as a specialized body responsible for reviewing requests from taxpayers.

In the United States, the Internal Revenue Service (IRS) currently operates as a semi-autonomous agency with extensive powers that fortify its functions.According to the Organisation for Economic Co-operation and Development (OECD), there are nine powers that an ideal tax authority should possess: 1. The power to make regulations; 2. The authority to impose sanctions or fines; 3. The authority to design its own internal organizational structure; 4. The authority to create or allocate budgets; 5. The authority to control or regulate the composition of the workforce; 6. The authority to hire employees; 7. The authority to hire or fire employees; 8. The authority to negotiate wage determination for employees; 9. The authority to set service standards.

Which Platform is Suitable for Indonesia?

Currently DGT is developing a matching number for the National Identity Number (NIN) and Tax Identity Number (TIN). The Core Tax Administration System (CTAS) has been constructed, ensuring that all taxpayers will have Taxpayer Account Management (TAM). The initial plan was to introduce this new system in early 2024, but due to enhancements and system completion, the launch has been postponed until mid-2024.

CTAS digitalizes 21 key business processes of the DGT, ranging from registration procedures to tax knowledge bases. The underlying concept is "tax just happens", where our daily online transactions will be linked to the CTAS application. Taxpayers can utilize their TAM to independently review unpaid invoices and track application service processes through CTAS. By the end of 2023, taxpayers are required to synchronize their NIN and TIN to support a unified identity migration process in the new CTAS system.

There are five main pillars of the Indonesian tax reform. Firstly, human resource quality; secondly, organizational pillars that have been implemented since May 2021 with sharpened tasks and functions across all vertical units. Thirdly, interconnected business processes. Fourthly, regularly updated legislation and policies to support tax reform. Lastly, the improvement of information technology systems and a sound database in line with the developments of the times.

Conclusion

The separation of the DGT into a semi-autonomous tax authority under the president aligns with the second pillar of tax reform. With an agile tax authority, it is expected that tax collection will be more empowered, contributing to the financial strength of the state.

*) This article represents the author's personal views and does not represent the stance of the institution.

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