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The Jakarta Post
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Structural woes spell tax office trouble

  • Rendi A. Witular and Tassia Sipahutar

    The Jakarta Post

Jakarta | Mon, September 16, 2013 | 11:51 am
Structural woes spell tax office trouble

Taxation director general Fuad Rahmany has recently found it hard to hide his frustration over the profound structural problems plaguing his agency, with his weary expressions seeming to signal how the magnitude of the problem is beyond his authority to resolve.

The agency has recently been flagged following a possible three-fold shortfall in its tax collection this year to as much as Rp 196 trillion (US$2.15 billion) from last year'€™s
Rp 65 trillion. The shortfall is equal to 17 percent of Rp 1,148 trillion the agency has to collect this year.

While the cause for the staggering shortfall may in part be attributable to the slowdown in the economy, most of the blame may go to the sustainability of reform at the agency.

'€œYou can imagine how hard it is to find just 200 honest officials here. Many of our officials have ended up behind bars for graft, and believe me it will not stop,'€ said Fuad, who took over the agency'€™s helm in January 2011 after spending most of his career as the Finance Ministry'€™s capital market top official.

Fuad said while the tax agency was committed to ongoing reform, it had fallen victim to the rigidity of the civil service regulations that made it difficult to fire and hire workers, and applied an ideal carrot and stick system.

'€œThe problem, obviously, has been keeping back the agency from performing to its fullest potential.'€

The tax agency, which contributes more than 76 percent of the state revenue, has more than 31,000 workers, or around 70 percent of the Finance Ministry'€™s headcounts.

'€œWhy does the graft remain? Because it'€™s extremely difficult under the existing regulations to fire corrupt and underperforming officials. It'€™s equally difficult to rotate them. They could sue us,'€ said Fuad.

'€œAn immediate breakthrough within our regulations is needed to resolve this, such as the authority to fire workers over suspicions of graft.'€

Among the regulations holding up the ongoing reform, according to Fuad, are Government Regulation No. 53/2010 on civil service discipline and Law No 43/1999 on civil service principals.



Under the law, for example, a dismissal of civil servants, regardless of the violations, could not be put into effect without approvals by several related agencies, such as the National Civil Servant Agency. The dismissal process could take more than a year.

'€œIf we talked about such regulations, it'€™s obviously beyond my authority to have them fixed,'€ said Fuad.

While the law and regulation have widely been cited for stalling bureaucracy and civil service reform, the government and lawmakers have yet to prioritize their revisions, placing ongoing reforms, such as in the tax agency, on a weak footing.

Former finance minister Sri Mulyani Indrawati launched ambitious reforms at the tax office in 2007 by setting up a new code of ethics and a new set of sanctions. She also raised take-home pay to limit the lure of accepting bribes.

Critics at the time warned the reform might not be sustainable given the absence of change in civil service regulations overall.

Questions on the outcome of the reform eventually came to the surface after the unraveling of a major graft case worth more than Rp 40 billion involving junior official Gayus Tambunan in 2010.

In April this year, the Corruption Eradication Commission (KPK) detained tax official Pargono Riyadi for allegedly trying to extort Rp 125 million from a businessman.

A month after, the KPK also detained junior tax officials Eko Darmayanto and Mohammad Dian Irwan Nuqishira for allegedly accepting bribes in a steel company.

'€œIt'€™s the same story all over again. However perfect the system we build, it will mean nothing if the operators behind it are morally corrupt,'€ said Fuad.

According to Fuad, around 10,000 of the agency'€™s 32,000 workers are at extreme risk of falling foul of graft. This includes jobs such as account representatives, who directly deal with assisting taxpayers, and tax inspectorates and investigators.

Gadjah Mada University economist A. Tony Prasetiantono said it would need an extraordinary effort to keep the integrity of the agency intact as the lure of graft was so great compared to other institutions.

'€œQuestions persist over the sustainability of reform at the agency. It'€™s time to find other solutions for the agency to boost its performance, and I think it makes sense if it is not part of the Finance Ministry. It'€™s just too big to manage now,'€ he said.

Aside from the integrity issue, the agency is also plagued with a pervasive lack of manpower, which has already held back its efforts to collect more tax revenue.

Between 2006 and 2012, tax revenue collection doubled and the number of taxpayers increased to 24.8 million from 15 million. However, headcounts at the agency during the same period grew slightly to 31,408 from 32,196.

With such a composition, one tax official serves 7,500 taxpayers, far higher than in Australia and Germany, where one official serves 1,000 and 700 taxpayers, respectively, despite more advanced IT systems.

Since 2007, the tax agency has added no regional offices to collect more revenue due to shortages in manpower, leaving it operating with 31 regional offices.

The budget for the agency has also been cut from Rp 5.3 trillion in 2009 to Rp 4.9 trillion in 2013 despite an average of more than a 10 percent rise in the tax collection target.

Due to the shortages, Fuad admitted his agency could not expand the collection base outside the 30,000 companies that had long contributed to around 80 percent of total tax revenues. '€œIt'€™s like hunting in the zoo,'€ he said.

Fuad said he had requested at least 5,000 new workers annually since last year to keep up with demand for higher revenue collection. However, due to the bureaucracy, it was not until recently that the request was granted.

Finance Minister Chatib Basri said he understood the agency'€™s problems and would remain committed to sustained reform.

Chatib added that, ideally, the tax office should become a separate entity from the Finance Ministry, given the tasks it was carrying out, which would require more flexibility.

'€œIdeally, it should head that way [toward separation]. It should be like Bank Indonesia or the Financial Services Authority where they have the flexibility to manage their workers,'€ said Chatib.

'€œThe current condition has not conducive for such a separation, given the massive coordination and supervision issues that need to be upgraded.'€

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