Non-Compliant Taxpayers: What's The Excuse?

By: Netadea Aprina, employee of the Directorate General of Taxes

I'm certain that the public is aware of the necessity of taxes due to numerous viral government-related situations. The term "tax" is often used to express dissatisfaction with the government's perceived failure to provide public goods and services.

Unfortunately, the public fulfilling its tax obligations yields an unfavorable result. Indonesia's tax ratio is the lowest in the Asia-Pacific region, at around 11% (OECD, 2018). According to Alamanda (2022), personal income tax revenue is insufficient and the income tax gap remains high.

Self-assessment

Indonesia has used self-assessment in its tax system since 1984. Under this system, taxpayers calculate their liability and pay their tax when lodging their returns.

This system presents a potential risk for fraudulent activity. Taxpayers can opt to either not file a tax return or submit one with false income or expenses. What is the rationale for maintaining a system that generates risk?

This system is more cost-effective than the official assessment system (Sarker, 2003). Taxpayers can preemptively disclose their taxes, allowing tax authorities to focus their efforts on non-compliant taxpayers.

This system relies heavily on the taxpayers' honesty, ability, and willingness to comply voluntarily. These factors may discourage taxpayers from bearing responsibility for this system.

The Factors

First, lack of tax knowledge Not all individuals may be capable of comprehending tax regulations. Employees who have had taxes withheld may be unsure about their tax filing obligation. Some entrepreneurs intentionally avoid filing tax returns, believing that they are not eligible to be taxed.

Tax return filing is mandatory for all taxpayers. Noncompliance by taxpayers may result in penalties and interest being imposed. Taxpayers may be exempt from submission if they meet specific conditions outlined in PMK-243/PMK.03/2014 and PER-04/PJ/2020.

In fact, the government is quite charitable. They have implemented economic stimulus measures in response to the pandemic.

For example, investors may receive tax-exempt dividends; small businesses with a total turnover of up to Rp 500 million are exempted from taxation; disclosed inheritance assets may not be taxed; expatriate workers in Indonesia may only be taxed on their income derived from within Indonesia; and individuals with excess tax withholdings can receive an accelerated refund within 15 days without audit.

Still, a significant number of individuals remain uninformed. The reason is due to a recently issued regulation. Tax stigma also poses a challenge. Some taxpayers regard such facilities as a trap for them.

To engage a broad audience and maintain regular interaction, the DGT uses a variety of social media channels. This strategy includes sharing videos and posts explaining, in a playful and simple way, updates in tax regulations as well as taxpayer rights and duties.

The objective is to enhance taxpayers' perception of tax administration as being more approachable. Personalized methods, such as letters, visits, and campaigns, are utilized to encourage adherence to tax regulations, including program guidelines and deadline reminders.

Second, the complexity of tax reporting Tax return forms are often perceived as complex, leading taxpayers to either hastily complete the forms, seek professional assistance, or ignore the forms entirely.

The complexity arises from the numerous deductions, intricate computations, and income-based tariffs. These measures aim to promote fairness in that those who are able to pay more do so, and vice versa.

Employees can deduct religious donations from their taxable income on their tax return, which may not be known by their employer. Insurance agents should review their earnings to avoid the tax credit exceeding their tax liability. Entrepreneurs can claim deductions to reduce their taxable income.

The DGT simplifies the complexity by integrating data from other taxpayers and third-party entities, providing taxpayers with a convenient method of form completion. Yet, those data may be inaccurate or inadequate due to incomplete input. Taxpayers are required to rectify any inaccurate data and collect relevant supporting documents.

In 2021, the DGT introduced a Tax Instructor and Assistant Tax Instructor to offer complimentary tax guidance and consultation to taxpayers while filing their tax returns. Moreover, the 3C program endorses digital services, prioritizing call centers and websites over face-to-face interactions with the tax office, thereby enhancing convenience and accessibility for taxpayers seeking information.

Third, inadequacy of supervision and law enforcement Non-compliance may vary from unintentional miscalculations to intentional tax evasion. The latter assumes that their financial transactions will remain undetected.

They opt for cash transactions or conceal their assets in offshore accounts, which are often perceived to be beyond the surveillance of the tax authority.

Taxpayers perceive the DGT's enforcement capacity as limited. They believe a higher proportion of noncompliant individuals is due to inadequate DGT officials handling the tax complexities within Indonesia's population.

The DGT utilizes technology to tackle this issue by utilizing third-party withholding tax data and exchanging data with ILAP and other countries. Integrating NIK-NPWP and implementing big data analytics along with compliance risk management and business intelligence can streamline the verification process. Additionally, there are plans to broaden the functional duties of the Tax Auditor and Assistant Tax Auditor roles.

Taxpayers who fail to meet their tax obligations may incur tax arrears. Outstanding debts may lead to an uncertain recovery of tax receivables. Timely and expeditious tax collection is preferable.

The DGT possesses the power to confiscate assets and funds, which are widely recognized as effective methods of debt collection. They may carry it out continually to strengthen the deterrent effect and prevent taxpayers from perceiving the DGT as barking but having no bite. This measure will promote fairness for compliant taxpayers.

The implementation of the new core tax system in 2024 and its corresponding regulations are expected to improve tax administration. This will lead to greater convenience and certainty for taxpayers, as well as increased efficiency for the DGT.

Understanding taxpayer noncompliance is essential for preserving the integrity of the tax system and safeguarding Indonesia's revenue. If individuals remain unwilling to pay taxes, it may lead to a reduced tax base. This raises the concern, "Who will fund social services and public goods?"

*)This article is the author's personal opinion and does not reflect the view of the institution where the author works.

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