T

he government will soon embark on a national tax census to register individual and institutional taxpayers and tax objects that are still outside the tax net. This effort will be part of a concerted drive to broaden Indonesia’s taxpayer base and reduce tax evasion, thereby increasing tax revenue and expanding the government’s financing capacity.

Tax evasion in Indonesia, Southeast Asia’s largest economy, has been quite pervasive, as evidenced by its low tax ratio (tax receipts against GDP) of less than 13 percent, compared to a range of 17 to 23 percent in most other major economies in the region.

As of this year, the total number of registered individual and institutional taxpayers was estimated at 20.5 million, representing a 375 percent increase from the total number in 2005. However, not even 30 percent of these bothered to file annual tax returns.

The 2012 state budget proposal, which targets a 16 percent increase in tax receipts, calls for a more vigorous campaign to promote tax culture in this country.

No one is arguing against the urgent need for stronger enforcement of taxation laws and improving the efficiency and competence of the taxation directorate general in administering and auditing tax collection.

But stronger law enforcement in itself will not do much to encourage voluntary tax compliance. This measure should be spearheaded with campaigns to develop a high level of tax culture, which is key to encouraging voluntary tax compliance.

Under our tax self-assessment system, tax law enforcement, though necessary to prevent or minimize tax evasion and tax fraud, cannot ensure tax compliance because there will never be enough auditors to examine all tax returns.

True, voluntary tax compliance or the public’s willingness to pay their taxes properly is influenced by how high the costs of tax evasion are (the risks of being caught evading taxes). And this factor is in turn determined by how credible and effective tax law enforcement is in the public eye.

However, voluntary tax compliance is also strongly influenced by taxpayers’ perceptions of the integrity of tax officials and the government’s credibility in general. Put another way, voluntary tax compliance requires an environment of mutual trust between taxpayers and tax officials, unlike the current atmosphere of mutual distrust whereby taxpayers perceive most tax officials as corrupt and tax officials suspect most taxpayers as tax cheaters.

Yet more influential to the nurturing of a high level of tax culture and the enhancement of voluntary tax compliance are public (taxpayer) perceptions of how their tax money is spent by the government.

We think a more vigorous tax campaign through the national tax census will not be effective in developing a high level of tax culture or in encouraging voluntary tax compliance if it is not supported by a more concerted and effective drive against corruption.

As long as the public continue to perceive corruption as endemic, systemic and deeply-institutionalized within the administration, they will always try to avoid and evade their tax obligations.

Their logical question is why pay taxes to the government if a large portion of that money will end up in pockets of corrupt officials?