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Higher pay alone won'€™t make tax collection more vigorous, effective

On his visit to the Directorate General of Taxes (DGT) to file his individual tax return last week, President Joko “Jokowi” Widodo announced his signing of the presidential decree on increasing the welfare of the country’s tax officials

Danny Ardianto (The Jakarta Post)
Melbourne
Fri, March 27, 2015

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Higher pay alone won'€™t make tax collection more vigorous, effective

O

n his visit to the Directorate General of Taxes (DGT) to file his individual tax return last week, President Joko '€œJokowi'€ Widodo announced his signing of the presidential decree on increasing the welfare of the country'€™s tax officials.

Already among the highest-paid public servants in the country, the staff of the DGT will now enjoy an even higher remuneration package starting April this year. Its head, the director general, will receive Rp 117 million (US$9,000) monthly in addition to standard benefits for a government employee.

This will no doubt create a heated debate among the people about whether such increases are appropriate and timely.

Jokowi and the Finance Minister have made a bold statement that this increase is not given without a clause. The tax revenue target has been increased to what has been called the highest in the country'€™s history (Rp 1.4 quadrillion from
Rp 1.14 quadrillion last year).

The introduction of the new remuneration may have followed a rather unorthodox approach, though.

The tax revenue target last year was missed by almost 9 percent. Yet, the government has decided to give raises this year and
evaluate the DGT'€™s performance the following year instead of giving a pro-rata increase based on current performance.

Surely, public expectation will be higher than ever. But what are the chances of the DGT actually meeting the target this year?

After multiple experiments, the science suggests that monetary incentives can do more harm than good if applied to work that requires creativity and lateral thinking.

In this case, humans are more motivated by the opportunity for self-direction, personal development through mastery of skills and a strong sense of purpose in their work.

Collecting nearly Rp 5 trillion per day clearly requires a high degree of creativity and is more than just a clerical job.

Thus, I argue that we need more than simple financial incentives for the DGT to meet its target.

The government needs to take into account at least three perspectives: (1) structural, (2) regulatory and (3) cultural.

From the perspective of organizational structure, it has long been argued that there needs to be a stronger and more independent and authoritative tax agency if an efficacious tax system is to arise.

This means more authority on budgeting, hiring and negotiating with various stakeholders in the country. Additional flexibility has already been offered to the DGT.

But until it has a different status from other government civil services, the DGT will remain envied and resented by the majority of other government civil services.

And this doesn'€™t help the DGT to achieve its goals.

On the regulatory issues, the DGT is severely disadvantaged by not having the ability to access key data for tax law enforcement such as taxpayer'€™s banking data.

Yes, I agree, the intensive collection of tax revenue should not deter potential investments and economic growth nor produce unnecessary concerns for deposit holders.

But regulatory breakthroughs are needed if the government expects to have tax revenue able to fund 85 percent of the state budget this year.

Some improvements in technological applications will help facilitate better data exchange and data mining for tax revenue collection, but without regulatory support they will take a longer time to be effective.

Finally, a cultural revolution is urgently needed within the DGT. If it is expected to act like a progressive private sector organization, and thus be compensated as such, it has to be run like one.

The high-paying jobs and organizational flexibility will mean little if the work culture is more bureaucracy oriented than result oriented. Radical changes on work behavior should be considered.

No longer is it that work can be seen as being in the office from 7:30 a.m. to 5:00 p.m. doing whatever the boss says.

Work must now become a collective endeavor of thinking creatively and executing ideas productively with a taste of esprit de corps that has long faded.

Being the highest-paid government public servants, they must set a commendable example for other government civil services so that the betterment of the public sector is finally a real possibility.
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... the DGT is severely disadvantaged by not having the ability to access key data ...
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The author is researching, among other subjects, knowledge management governance, and is a doctoral candidate at Monash University, Australia.

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