INSIGHT: Indonesian Tax Amnesty towards Comprehensive Tax Reforms

By Esra Junius Ginting, Employee of the Directorate General of Taxes

After creating a remarkable achievement in the 1st period, Indonesian Tax Amnesty is still becoming Government’s concern in digging more tax revenue in the 2nd period until the end of this year. The success of the previous phase silenced this programme’s pessimism after reaching the total ransom of Rp 97.2 trillion and total declaration and repatriation of Rp 3.629 trillion. The question is “what about the participation of taxpayers?”

Even though the Directorate General of Taxes (DGT) contributed more than 70% of the national budget, Indonesia taxation condition is still far from satisfaction level. Concerns from the DGT itself, other institution, parliament, leaders and all stakeholders related to the importance of substantial and comprehensive tax reforms is absolutely required. It is not without reasons. The stagnancy of the tax ratio 10-12% in the last decade which is still far left behind neighbour countries reflects that the concern is crucial.

Ironically, according to McKinsey & Co data, around 300 milliard USD of Indonesian assets were saved in overseas. Then, in the Deposit Insurance Agency report, the more than Rp 2 milliard deposits covering Rp 2.428 trillion are owned by 54.28% of total deposits. In fact, in 2015, tax revenue of non-employees individual taxpayers is only Rp 9 trillion. This amazing data reveals a huge tax potential. Indeed, a higher capacity of taxpayers should be required to pay more taxes. The question is “what about their compliance?”

Surprisingly, even though the 1st period of tax amnesty was categorised as a successful movement and beyond expectation, the participation of taxpayers in this programme is still minimum. The Minister of Finance in media gathering on  November 26^th, 2016 conveyed the data about the involvement of the taxpayers. For example, in Jakarta area, the number of taxpayers participating in the tax amnesty is around 150 thousand taxpayers from a total of 2.1 million taxpayers. It means only 7% of taxpayers in Jakarta area joining the tax amnesty programme. In addition, in Java (exclude Jakarta), the data shows only 171 thousand taxpayers or only 1.7% of 9.9 million taxpayers. It indicates there is still a huge gap of the tax potential and the realisation.

Moreover, among 3.9 million taxpayers in Sumatera, only 80 thousand or 2% of taxpayers followed the tax amnesty programme. Meanwhile, in Kalimantan, the taxpayers participating is only 22 thousand out of 1.3 million taxpayers (1.7%). With the similar percentage with Kalimantan, the number of taxpayers joining the tax amnesty in Bali, Nusa Tenggara and Maluku, and Papua is only 22 thousand. Next, as for the participation of the Sulawesi taxpayers is the lowest i.e. of the 1.6 million taxpayers, only 17 thousand taxpayers or 1.1% who participated this programme.

What does the data mean? It might indicate there is a doubt for taxpayers to join due to inappropriate information related to Indonesian tax amnesty or might be the sign of the low tax compliance. It needs to be analysed more. Meanwhile, the taxation office has been encountering several shortcomings in collecting taxes such as limited organisation capacity and the sophisticated tax avoidance practices. So, what next? I would say this programme should be capitalised more as a milestone towards comprehensive tax reforms. It is not without reasons since there are key factors creating a tremendous opportunity that should be utilised well in this point of time.

Employees Commitment

Most successful international companies are generally reliable in soft human resource management emphasising on employee engagement, rewards and motivation. They realised that the employees, as the most valuable assets, drive the company’s future. If executives created employee commitment, their enterprises could be assumed obtaining the most valuable asset i.e. the intangible asset (employee commitment). Regarding the DGT, I firmly believe that most of the tax officials managed to perform well in delivering the best services for taxpayers.

In the 1st phase of Indonesian tax amnesty, the employees show their commitment through working until late night on weekdays and keeping open on the weekend. True, there is still a handful of irresponsible employees who injured the spirit of this programme. However, the majority of tax heroes in this organisation shows the real sacrifice as part of the employees commitment in doing their job. Even many people invited tax employees to explain about tax amnesty although they are at out of office or duty. Indeed, all employees should be ready anytime to be the DGT’s ambassadors. Again, ALL EMPLOYEES!

Change Leaders

Sri Mulyani Indrawati emerges as a new hope for the Ministry of Finance including the taxation office. Her consistency and strong commitment lead most of the employees to a certainty. By emphasising on loving Indonesia more, she is able to build an emotional attachment with the majority of employees to contribute more to the country. Many analysts admit that she becomes an unyielding role model. Approaching some conglomerates to join tax amnesty is one of her ways how to be involved directly to succeed the Indonesian tax amnesty. She can create a trust not only of the taxpayers but also of the employees to lead the organisation to achieve its goals. She also frequently assists and interacts directly with the employees who are on duty serving taxpayers even on the weekend.

The President, Joko Widodo, moreover, shows his concern on this programme. He often monitors directly about its operation. The Minister of Finance also keeps reporting the progress of this programme. On November 25th, 2016, the President visited Makassar to do dissemination related to Indonesian tax amnesty and encourage tax officials to work all out.

Ease of Paying Taxes and AEoI

In addition to those two most crucial factors, according to World Bank and PricewaterhouseCoopers report in the mid of November 2016, Indonesia moved 44th rank in Ease of Paying Taxes from 148th position to 104th place.

What’s more, in 2018, there will be a global initiative as a new era of tax openness supported by Automatic Exchange of Information (AEoI). It will stimulate taxpayers to participate in Indonesian tax amnesty before their hidden assets will be hunted.

Is it enough?

Definitely No!

So what else?

Those factors should be capitalised NOW by keeping more the involvement as well as engagement of all stakeholders including external parties such as other institutions, media, etc. Internally, true, this organisation is categorised as a strong public agency by having change leaders and employees commitment. The President also fully supports the tax amnesty programme even though many parties keep pessimistic towards this programme. Even media supports to broadcast every single progress of this programme.

Nevertheless, all these efforts will remain as only an amnesty if no earnest attempts to optimise the tax reforms comprehensively and substantially. There should be a continuance on the development of integrated tax administration system as well as the fairness and law enforcement principle. The access towards banking data becomes a classic issue that should be awarded to the taxation office in order to dig more tax potentials. Indeed, increasing the DGT capacity is mandatory as this institution has a far-from-easy job. Therefore, Indonesian Tax Amnesty should be the milestone to achieve comprehensive tax reforms.(*)

*) The information and views set out in this article are those of the author and do not necessarily reflect the official opinion of the institution in which the author works.