Tax receipts for the fiscal year 2009 that ended last month were only about 2 percent shy of the Rp 577.4 trillion (US$59.5 billion) target. Not too bad a feat, given the substantial fall in economic growth from 6.1 percent in 2008 to an estimated 4.3 percent in 2009, and the sizeable amount of tax incentives provided for businesses as part of the fiscal stimulus for pump priming.
The 2009 tax receipts, according to the tax directorate general, were still 4.4 percent more than in 2008. Since revenues from value-added tax (VAT) and luxury sales tax exceeded their target by 5.5 percent, the shortfall should be blamed squarely on income tax receipts.
The shortfall in income tax revenues seems to reflect the lower-than-estimated growth in corporate incomes, because the number of registered individual taxpayers increased last year by around 50 percent to nearly 16 million.
More concerted efforts are still needed to improve the ratio between direct and indirect tax receipts.
Too much emphasis on collecting VAT is not fair because indirect taxes — different from direct tax as income tax, which is collected in proportion to the amount of taxable income — impose the same burdens indiscriminately on all taxpayers irrespective of the level of their income.
The better-performing revenue system — one of the government’s core reform objectives — should be attributed to the higher efficiency and effectiveness at the tax directorate general, which itself was brought about by the comprehensive reform measures launched by Finance Minister Sri Mulyani Indrawati three years ago.
The tax reform is designed to stimulate greater tax compliance and strengthen transparency and accountability in tax administration by introducing modern compliance management systems, increasing the efficiency of taxpayer data collection and management, and expanding the tax base both in terms of the number of taxpayers and transactions put into the tax system.
However, the tax reform is still far from complete, especially when it comes to tax audits and collection functions as well as staff capacity and integrity standards.
The tax directorate general, for instance, as of early this month still had more than Rp 51 trillion in arrears. Judged from the low tax ratio (tax receipts as a percentage of gross domestic product) that remained at around 13 percent, far below the 18-25 percent in most other major economies in the ASEAN region, tax evasion in Indonesia is still perceived to be extensive.
Yet more challenging is that less than 50 percent of registered individual taxpayers have regularly filed their annual tax returns.
It is encouraging, therefore, to learn that the tax office chief, Mochamad Tjiptardjo, pledged earlier this week to step up tax audits and crack down on taxpayers who fail or do not show good faith to settle their arrears (overdue tax obligations). The tax laws authorize the tax directorate general to confiscate the assets of tax debtors, freeze their bank accounts and even jail them as part of law enforcement to encourage tax compliance.
The tax directorate general is also mandated to access data on taxpayers’ assets, business and financial records from banks and other state and private institutions, as well as such professionals as accountants, notaries public and consultants. This broad authority will greatly help the tax office improve its intelligence base and its ability to properly assess tax liabilities, verify tax compliance and identify and register new taxpayers.
All in all, this more efficient tax administration will make the costs of tax compliance reasonably low, while a more effective audit and tax intelligence system will minimize the opportunity for tax evasion.
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