T

he Tax Office will go ahead with a plan to waive the penalty imposed for late tax payments despite criticism that the measure cannot be implemented because it contravenes existing law.

Tax Office head Sigit Priadi Pramudito said the write-off of the penalty was not against the 2007 Taxation Arrangements and Procedures Law, and was endorsed by law enforcement agencies, namely the Corruption Eradication Commission (KPK), the Attorney General'€™s Office (AGO) and the National Police'€™s Criminal Investigation Department (Bareskrim).

'€œArticle 36, paragraph 1 [of the law] says that we may reduce or waive the administrative sanction, including in the form of an interest write-off,'€ he said during a press conference on Tuesday at which representatives of the three agencies were present.

According to the law on tax, a penalty will be charged when taxes are not paid by the due date. The penalty is 2 percent of the due tax payment per month.

Sigit said that the removal of the penalty was needed so that taxpayers burdened with a 2 percent per month penalty would pay their taxes. According to him, the current low tax ratio of 11 percent of gross domestic product (GDP) reflected taxpayers'€™ incomplete comprehension of their tax obligations and that prompted his side to implement the write-off.

'€œThis is our way of encouraging people to pay their tax arrears without considering the interest sanction because next year, we will go hard on delinquent taxpayers,'€ he said.

With the write-off, they are now required to pay the principal amount only. However, the write-off is only applicable for tax arrears that occurred between 2009 and 2014, and that should be paid this year.

Data from the Supreme Audit Agency showed that the amount of tax arrears reached Rp 67.7 trillion (US$5.13 billion) by the end of 2014. As of March, the Tax Office had received around Rp 6.75 trillion of the arrears, some of which resulted from the implementation of gizjeling (incarceration of tax evaders).

The Tax Office itself, as previously reported, is eyeing a total of Rp 1.29 quadrillion in total tax revenues in 2015, which is 31.4 percent higher than what it achieved last year.

By April, tax revenues stood at Rp 310.1 trillion, equal to 24 percent of the full-year target. The office has not come up with a complete calculation on how much it may potentially lose from the interest sanction write-off.

However, according to Edi Slamet, director of tax inspection and collection at the Tax Office, the amount of the late penalties to be written off may reach Rp 4 trillion in the Jakarta area alone.

'€œBut we may see Rp 5 trillion worth of tax revenues from the interest sanction waiver in Jakarta,'€ he said.

Eddy Rakmanto, director of prosecution for the Junior Attorney for Specific Crime (Jampidsus) at the AGO, backed the Tax Office, saying that no state losses would be caused by the write-off.

Bimo Gunung, the KPK'€™s planning and finance bureau head, said that the move was important to trigger higher taxpayer compliance, since 70 percent of state revenues are generated from tax.

Meanwhile, Center for Indonesia Taxation Analysis'€™ (CITA) executive director Yustinus Prastowo said that the sanction write-off was a win-win solution for the government, especially because it still lacks proper taxation data.

'€œHowever, it must make sure that taxpayers eligible for this write-off are actually those who are behind on payments because of oversights and not those who intentionally evade payment,'€ he said.

The Tax Office has made various efforts to raise tax revenues including those from multinational companies (MNCs)

Last month, the tax directorate general met with scores of multinational corporations (MNCs) to demand that they comply with the prevailing tax regulations.

According to the directorate, taxes paid by MNCs accounted for 25 percent of the country'€™s state revenues last year. '€œBut a number of MNCs use plans to evade taxes that cause losses to the host country,'€ said the directorate'€™s spokesman, Mekar Satria Utama.