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Jakarta Post

For stronger tax authority

  • Editorial Board

    The Jakarta Post

Jakarta   /   Wed, October 23, 2019   /   09:00 am
For stronger tax authority A building of the Directorate General of Taxation in Jakarta (kontan.co.id/File)

The government’s plan to give greater authority and autonomy to the Directorate General of Taxation by unshackling it from the rigid bureaucratic system of the Finance Ministry seems much closer to realization. This was part of President Joko “Jokowi” Widodo’s pledge on Sunday to expedite public administration procedures and remove bureaucratic inertia.

The idea of stronger autonomy for the revenue administration, making it more effective and efficient, has been on since 2016, when the House of Representatives began deliberations on a bill on general tax provisions. The bill stipulated provisions that would transform the tax office into a revenue administration agency with greater autonomy in terms of organization and planning, budget management, recruitment and performance standards to make it more effective and efficient. But the draft law failed to pass.

However, because the establishment of a semiautonomous revenue service should be based on law and the need for such a reform is extremely urgent, the government has prepared an omnibus bill, a proposed law that covers a number of diverse or unrelated topics, packages and measures, in a bid to expedite the legislation process.

We hope that the deliberation process of the omnibus bill, like similar bills on employment and small and medium-scale enterprises currently under preparations, will be smooth, given Jokowi’s all-out efforts to please his coalition parties during the process of forming his new Cabinet.

There is indeed a compelling case for giving the revenue administration system more autonomy in view of its responsibility to collect the bulk of revenues for the state to finance public facilities and services. The revenue administration must be efficient and effective while also fair and impartial.

However, learning from the experiences of other countries that have developed strong revenue service agencies, there are at least two key prerequisites for a semiautonomous state revenue agency (SRA).

First is that the omnibus law should stipulate elaborate and comprehensive provisions on an internal-control mechanism for the planned SRA. The provisions should include such technical details as rules on how the governing board (commissioners) and officials of the internal-control department should be recruited, how the SRA’s operations should be audited and how and to whom the SRA should give its accountability.

Without a credible internal-control system, greater autonomy would only make the revenue administration agency even more corrupt and more arbitrary in its decisions and assessments.

We should magnanimously concede that the main barrier to the proper enforcement of taxation laws and the poor performance of the tax office so far has not been due to its lack of autonomy, but rather the lack of integrity and technical competence of many of its officials.

The second prerequisite, we think, is that the annual tax returns of all tax auditors and other senior executives recruited for the new revenue agency should first be examined and cross-checked against their bank accounts as well as their asset declarations and those of their spouses to confirm their integrity.