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More leeway for tax cheats?

The exit of Finance Minister Sri Mulyani Indrawati from the Cabinet may have come at a critical time for an antigraft drive at the tax office amid increased focus on systemic reform failures.

A string of recently exposed tax crimes in major cities has highlighted setbacks in the tax office’s reform program, once hailed as the country’s most successful.

Tax and customs supervision commission chairman Anwar Suprijadi said there was a serious failure in the supervisory system to detect tax crimes and leaks in tax collection involving top officials.

“Years after the reform drive, the tax office has been left with only eight people to staff its internal supervision division and oversee 32,000 officials across the archipelago,” Anwar said recently.

He said internal supervisors were only available in Jakarta.

In comparison, the customs and excise office, which is also known as corrupt, has 200 people in its supervision division, available at all regional offices. The office employs around 10,500 people.

The tax office is also said to be hindered by poor IT infrastructure, rendering it unable to monitor and verify tax invoices, payments and refunds.

There is also no online system linking the headquarters with regional offices. “The system also needs an overhaul. There’s so many problems that need to be addressed immediately,” Anwar said.

Reform at the tax office fully kicked off in the middle of 2007, and was marked by a more than 15-fold jump in the take-home pay of all tax officials. Then tax chief and current Bank Indonesia senior deputy governor Darmin Nasution laid down the groundwork for reform until his retirement in the middle of last year.

Darmin has been Mulyani’s patron and a close colleague ever since both were lecturers at the University of Indonesia in the 1980s and 1990s.

However, despite the colossal pay raise, corruption remains widespread at the tax office, with well-known embezzlement methods still being practiced, including filing fictitious claims for tax refunds.  

A company, identified only by the initials PHS and based in North Sumatra, had allegedly used the tax refund method to embezzle Rp 300 billion (US$33 million).

An ongoing internal investigation hints at the involvement of top tax officials at the tax office.

The embezzlement occurred during Darmin’s tenure when current tax chief Tjiptardjo was the tax office director of investigation and intelligence. “We need Mulyani’s leadership to help us investigate the tax crimes and patch loopholes in the tax system. The task is just too large and sensitive,” Anwar said.

Tax office official Wahyu Tumakaka said rigid regulations and the lack of an operating budget were behind the serious loopholes in the reform.

He said the office could not add more supervisors as there was a regulation limiting the headcount at tax offices.

“Structurally, the office’s management approach is not based on function but on bureaucracy,” said Wahyu, a graduate of the John F. Kennedy School of Government at Harvard University. “It impedes collecting taxes and supervising people. Our system was not well prepared when reforms started, leaving us with a frail backbone.”

A need to review the reform would have remained on the back burner had it not been for a tax graft case involving low-ranking tax official Gayus Tambunan that was exposed in March by a police general.

Tax revenue accounts for around 70 percent of state budget income.

2010 Tax office collection target

Income tax                       :       Rp 362.2 trillion
Value-added tax                :       Rp 263 trillion
Property and land tax         :       Rp 25.3 trillion
Duties from property and
land transaction                 :       Rp 7.15 trillion
Total                                           :          Rp 657.6 trillion

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