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Extra effort needed in tax collection
The government needs to go the extra mile to achieve its tax revenue target in 2018, as it faces a predicted shortfall this year, experts suggest
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he government needs to go the extra mile to achieve its tax revenue target in 2018, as it faces a predicted shortfall this year, experts suggest.
In the draft for the 2018 state budget that the government recently proposed to the House of Representatives, tax revenue is expected to reach Rp 1,415.3 trillion (US$106 billion), a 10 percent increase from the Rp 1,283.6 trillion targeted in the revised 2017 state budget.
The government should start acting now if it wants to achieve the 2018 goal, because this year it might only reach 85 percent to 91 percent of the target, said Yustinus Prastowo, executive director at the Center for Indonesian Taxation Analysis (CITA).
That calculation is based on realized tax revenue as of July, which is up 12.47 percent year-on-year (yoy). However, when excluding the one-off effect of the tax amnesty, a flagship government program that ended in March, the increase amounts to just 8.49 percent.
The tax amnesty program, which the government claimed had been “successful”, had failed to boost tax collection until now because of the delayed issuance of a much-awaited regulation on legal enforcement mechanisms, as mandated by Article 18 of the tax amnesty law, Yustinus said.
Article 18 stipulates that any undeclared asset owned between Jan. 1, 1985, and Dec. 31, 2015, is considered additional income and subject to a hefty penalty, even three years after the program has concluded.
“The Directorate General of Taxation is constrained in following through [on Article 18], because the government regulation has yet to be issued,” he said during a discussion on Tuesday.
Yustinus added that the government still had the momentum to boost tax revenue next year, as the tax amnesty had helped create awareness on taxation among Indonesians, but it would need to carry out “extraordinary efforts” in tax collection.
One of those efforts was to ensure that tax officials could access taxpayers’ banking and financial data, as mandated by government regulation-in-lieu-of-law (Perppu) No. 1/2017 on financial information access for taxation purposes, which the House passed into law in July.
That law is the legal basis for Indonesia to implement the Automatic Exchange of Information (AEOI), a global agreement initiated by the Organisation for Economic Co-operation and Development (OECD) to fight tax avoidance and evasion.
The implementation of the AEOI next year will give tax officials access to monitor taxpayers’ bank and financial accounts for tax probes and investigations, an effort believed to be effective enough to boost the country’s tax-to-gross domestic product (GDP) ratio.
Indonesia’s tax-to-GDP ratio, which is a common indicator of taxpayer compliance, currently stands at around 11 percent, much lower than the average 13 percent to 15 percent in ASEAN.
Another way to improve taxpayers’ compliance was to increase the audit coverage ratio, which reflects the number of audited taxpayers in a country compared to the overall number of registered taxpayers, CITA’s Yustinus said.
Indonesia’s audit coverage ratio currently stands at a mere 0.34 percent compared to the ideal range of between 3 percent and 5 percent, indicating a small number of audited taxpayers in the country.
At the same time, as an incentive for taxpayers to meet their obligations, Yustinus suggested that the tax authority simplify tax administration procedures.
Meanwhile, Eva Kusuma Sundari, a member of House Commission XI, which supervises fiscal and financial policies, expected lawmakers to start deliberating the revision of the General Taxation System (KUP) Law, which is seen as a key element of tax reforms but which has stalled over the last two years.
