The Supreme Audit Agency (BPK) should be commended for its effort in cracking down on malfeasance in state finances and in designing good policy recommendations to prevent corruption within the state budget implementation and at state companies.
However, the BPK demand that the tax self-assessment system, as reaffirmed in Law No. 28/2007 on general rules and procedures on taxation, be replaced with an official assessment system that the country had used until 1984 seems overboard.
BPK chief Anwar Nasution has insisted his agency will ask for a judicial review of the tax law at the Constitutional Court, with the aim of replacing the tax self-assessment system with an official one.
This, however, would only plant new seeds of legal uncertainty within our taxation system.
True, tax evasion in the country is still quite extensive, as can be noted from the tax ratio (tax receipts as a percentage of gross domestic product) of less than 14 percent, compared to between 17 and 20 percent in other ASEAN countries. Analysts estimate that actual personal income tax collection is only about 50 percent of potential revenue.
Tax Director General Darmin Nasution came out with even more shocking data earlier this month, revealing that only 33 percent, or 1.32 million of the four million registered individual income taxpayers, regularly filed annual tax returns.
However, restoring the official tax assessment system would not solve the problem of tax evasion and low tax compliance rate.
Even under the tax self-assessment system, taxpayers have remained extremely vulnerable to corrupt tax officials because the requirements and procedures for tax examinations and audits remain loose and the scope of tax audits is still quite broad.
It will take some time for tax officials in general to regain the public's trust, even though the Finance Ministry has put the tax directorate general under an overall reform program that includes huge increases in tax officials' take-home pay.
For more than three decades now the tax office has been perceived by the public as among the most corrupt public institutions in the country, with many of its officials living conspicuously far beyond their official means.
We don't see any urgency for reinstalling an official tax assessment system now. The current system does not entirely close the door for official tax assessments in so far as examinations or audits are necessary, for example, in case taxpayers ask for refunds of tax overpayments and there are strong suspicions of tax payment manipulation.
The problems though are that the procedures and the thresholds that allow for official tax assessments, examinations or audits are unclear, allowing them to be abused by venal tax officials, who unfortunately still make up the majority of tax officers.
Tax examinations or assessments have always been dreaded by taxpayers, because tax officials remain conveniently subject only to lenient internal controls at the tax directorate general and the inspectorate general of the Finance Ministry.
This explains why so few tax officials have ever been tried on corruption charges, despite the tax office's notorious reputation as one of the most corrupt public institutions. Government regulations require high tax officials to report their personal wealth but this ruling is ineffective because the wealth reports are rarely audited.
Reintroducing the official tax assessment system in this atmosphere of public distrust of tax officials would only sabotage the reform programs that have begun to have a positive impact on the quality and integrity of the tax administration.
Moreover, the tax directorate general will never be able to assess all taxpayers because there will never be enough tax officials to examine individual taxpayers, whose numbers will steadily increase as a result of the accelerated tax campaign. It would also be grossly inefficient, in terms of tax receipts, to examine all taxpayers.
Most important though is that the self-assessment system should be supported with selective, yet effective tax audits to stimulate voluntary tax compliance. Taxpayers would be afraid to evade their taxes if they knew there was a good chance of being caught by smart tax officials.
However, the government should also realize that voluntary tax compliance is strongly influenced by taxpayers' perception of the integrity of tax officials and how taxpayer money is spent by the government.
