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Focusing tax audits on high-net-worth individuals
If the government imposes a wealth tax of just 2 percent on these HNWIs it could collect additional revenue of Rp 40.38 trillion, a sum more than enough to fund the Family Hope poverty alleviation program in 2020 (Rp 37.4 trillion).
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Illustration of wealth (Shutterstock/beeboys)
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axes will play a more critical role in funding the post-pandemic recovery, as the government has to significantly increase expenditure to cope with the damage caused by the public health and economic crises. The biggest challenge, though, is that tax receipts have tended to decline due to the economic downturn.
As of May, only 35.33 percent of the targeted tax revenue for fiscal year 2020 has been collected. Non-oil and gas income tax and VAT receipts fell by 10.38 percent and 7.95 percent year-on-year. For sustainable and just economic development, Indonesia urgently needs a robust taxation system.
The tax revenue structure also shows a limited role of progressive taxation. Personal income tax (PIT), which has a progressive rate, only comprises less than 10 percent of total tax revenue (average 2005 to 2017), much lower than the Organization for Economic Cooperation and Development (OECD) average (24 percent in 2017). More than 90 percent PIT revenue was derived from workers (withheld by employers), while businesspeople and self-employed professionals who comprise high-net-worth Individuals (HNWIs), contributed less than 10 percent to total PIT revenue.
This situation shows that the current tax situation is asymmetric and how the progressive tax system, such as PIT, has limited capacity to properly tax the HNWIs. Where workers are contributing more to the tax revenue and becoming the backbone of the nation, the wealthy are contributing less.
Moreover, the compliance of entrepreneurs declined last year. The Directorate General of Taxation performance report shows that only 214,449 businesspeople and self-employed professionals (HNWIs) that registered as taxpayers in 2018 are paying taxes in 2019, down by 67.3 percent from 657,716 in the previous year.
Hence, it has become increasingly imperative for the government to intensify tax collection from HNWIs. The idea of collecting more taxes from the wealthy and better-off people was also proposed by the World Bank in its Public Expenditure Review report launch recently. The World Bank also suggested that green and health taxes (such as a sugar tax to support long-term health spending) be collected.
There are at least three ways of intensifying tax collection from the rich. First, stepping up the examination and audit of the HNWIs to check their tax compliance. This can be done because the DGT has been authorized now by Law No. 9/2017 to access the bank accounts of taxpayers. In the international context, the government has engaged in the Automatic Exchange of Information (AEoI) with more than 90 tax jurisdictions around the world.
