Relinquishing authority for the taxation directorate general, one of its most important bodies, and turning it into a separate entity seems like a major challenge for the Finance Ministry.

However, it guarantees it will be a smooth process, thanks to several measures now being prepared.

The ministry will implement a special mechanism and coordination measures to prevent hiccups during the process, Luky Alfirman, head of policy harmonization and analysis at the Finance Ministry, said on Friday.

“There is no reluctance as the KUP [the General Taxation System] bill was itself proposed by the Finance Ministry. This is our initiative,” Luky said.

A draft revision of the KUP Law, currently being deliberated by the government and lawmakers at the House of Representatives, stipulates the establishment of a state revenue agency (BPN) that will take over the responsibilities of the directorate general starting in 2018.

The future agency will be under aegis of the president, but will still be required to report to the finance minister, who retains authority for tax policy. The agency is slated to have semi-autonomous status.

Last year, the government inked a partnership with the US Internal Revenue Service (IRS) for consultation to improve the Indonesian tax office’s capacity and to prepare it for the transformation.

However, the government is also looking to add local content to the BPN, creating a local version of the IRS. Details of the new institution will be laid out in a supporting regulation, Luky said.

Following the transmogrification of the taxation directorate general, the ministry will retain just six directorates general, including the budgeting directorate general, the customs and excise directorate general, the treasury directorate general and the financing and risk management directorate general.

Finance Minister Bambang Brodjonegoro said in a text message to The Jakarta Post that the revenue agency would have a different system from the ministry, so that it “will not spark jealousy”.

If the bill is finalized into law, it will grant the BPN with greater authorities than those currently exercised by the taxation directorate general; it will, for example, be able to access data from government institutions and other parties, including banks, without having to be pursuing an active tax crime case, according to the draft.

It will nullify banking confidentiality and allow the agency to legally enter any establishment to look for documents or other evidence, with the aim of improving tax compliance and collection.

The government has vowed to increase collection, which remains the largest crutch of development.

However, it chronically struggles to attain its own tax revenue targets, which this year were set at Rp 1.36 quadrillion (US$102.3 billion), a 35 percent hike from the level attained last year. By the end of May, tax collection had reached just Rp 364.1 trillion, equal to 26.8 percent of this year’s target, according to latest data from the ministry.

Meanwhile, despite the greater authorities that the tax office will assume, taxation director general Ken Dwijugiasteadi claimed that the public should not be afraid. “Why should people be afraid of us looking into their accounts, as long as they have paid their taxes?” he asked rhetorically.

University of Indonesia tax expert Gunadi said the government should conduct a test first to find whether the tax office could not run its operations more effectively if granted greater authority.

“Being directly under the President will only add to the political burden if the new agency fails to fulfill the tax collection target,” he said.

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