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The taxman's new strategy
However, the ultimate question lies in whether brand new mechanisms will be effective in collecting taxes.
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No matter how perfect the tax enforcement system, it will all be meaningless without voluntary compliance by the public. (Shutterstock/File)
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ubsequent to the end of Indonesia’s bittersweet tax amnesty on March 31, everyone keeps asking “What is the next strategy for tax enforcement?” Realizing that the tax amnesty was unsuccessful in repatriating assets, Finance Minister Sri Mulyani Indrawati has come up with a whole list of brand new mechanisms, for instance: 1) the Automatic Exchange of Information for tax purposes (AEOI); 2) Domestic disclosure of financial information (domestic disclosure); and 3) Prevention of Base Erosion and Profit Shifting (BEPS).
These measures are certainly groundbreaking and sophisticated and one may assume that they are bold moves in Indonesia’s tax enforcement regime.
However, the ultimate question lies in whether these measures will be effective in collecting taxes.
Disclosing financial information: It is crystal-clear that disclosing financial information will result in better tax enforcement as any suspicious financial activities that indicate tax non-compliance will now be strictly scrutinized by the government.
Apparently, however, the minister hesitated in commencing the implementation of domestic disclosure as she amended the regulatory framework for domestic disclosure by issuing the Finance Ministerial Regulation No. 70/2017 on technical guidelines for access to financial information for taxation purposes.
The amendment was unfortunately prompted by public distress, especially from micro and small businesses, because they are afraid that by implementing domestic disclosure, tax authorities may abuse this mechanism to collect more taxes from them.
Thus, for the sake of social justice, the minister had to increase the minimum threshold for financial accounts that will be disclosed from financial accounts with balances of above Rp 200 million (US$15,027) to financial accounts with balances of above Rp 1 billion.
