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Moving to tax reform with artificial intelligence
Stephen Hawking once said that “intelligence is the ability to adapt to change”
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tephen Hawking once said that “intelligence is the ability to adapt to change”.
Today, we’re facing a new era of disruption in digital technology. The internet, as the most remarkable milestone of the Third Industrial Revolution, has driven efficiency in our tax administration system, which we can conclude from the increase in the proportion of taxpayers filing their annual report using the electronic filing system, at 21.6 percent, while the manual method saw a decline of 12 percent (April 2018).
Furthermore, the Fourth Industrial Revolution has already emerged beyond imagination and is ready to change our realm dramatically. What makes the concept of this stage different from the third one is largely Artificial Intelligence (AI). It will play a qualitatively different role in the size, speed, and scope of work. The role between the user and the digital system will be blurred. In one way, it leads to optimism over the progress of tax reform in Indonesia, with some seeking stakeholders’ awareness.
The Directorate General of Taxation as the tax authority, is still running the third phase of the country’s tax reform. After the success of the tax amnesty, it is embracing the challenge of how to manage big data. With all the effort to merge billions of records from other institutions, such as the Directorate General of Customs and Excise, Directorate General of Immigration and local governments, it demands more than a digitalized system.
After the enactment of Law No. 9/2017 on access to financial information for taxation purposes, the bank secrecy regime in Indonesia was removed and financial institutions are asked to supply financial data when requested by tax auditors. The regulation also supports the implementation of the Automatic Exchange of Information (AEoI) agreement, which allows Indonesia to join the ranks of 49 other countries that are committed to exchanging financial data under the Common Reporting Standard (CRS).
Whoever is elected president this year should pay close attention to the country’s tax reform [...]
Considering all the facts, we can presume just how much data the tax office will collect. It expects to see a its workload multiply 15 times in the future, in line with an increase in the number of registered taxpayers, as well as twice the number of employees.
The system must be able to accommodate more than 10 billion electronic tax invoices, 8.4 million electronic data tax reports and data from 64 agencies, institutions and associations (ILAP), and exchange information from more than 90 jurisdictions. These exclude the existing data of 956,000 tax amnesty participants that need to be evaluated.
With data platforms of different formats and sources, the tax office will need a larger server and faster internet connection. The previous tax system reportedly lacked the efficiency to analyze the numeric and digitized data. Therefore, the tax office’s IT system requires the new Core Tax System (COTS) as a primary necessity and the business intelligence within as another form of AI.
This system will redesign the main capability of the tax office’s business processes. It can integrate the IT system, data base and business processes, as well as enhance data management, data analytics and business intelligence. It will also support the integration of third-party data. Thus, the extension of a tax base and the efforts of increasing the tax ratio to its recommended level of 15 percent will be more efficient.
The system will be more adequate for the risk-based compliance management approach system (called Compliance Risk Management), already in use in 16 tax offices. It will sustain the entire Taxpayer Accounting project that has been implemented in 12 tax offices. It will also maintain automation of business processes, including innovations in the Revenue Accounting System.
Despite the optimism, the Taxation Directorate General still has to prove its commitment to tax reform. The existing system should fulfill the recent business processes while the first phase of developing a solution will start in the middle of this year. There’s still a long way to go as the complete migration system will take five years.
The first challenge is developing the tax office’s human resources. The tax reform process should anticipate job losses. The discussion might begin next year or the year after. Meanwhile, research firm Gartner predicted at the end of 2017 that the usage of AI will eliminate 1.8 million jobs by 2020 and create another 2.3 million jobs.
This means that the tax office must continuously train and facilitate its human resources in developing and adapting COTS. Moreover, a merit system and higher performance indicator will be required, as there will be far fewer clerical jobs.
Another challenge revolves around security and integrity. More comprehensive investigations must be conducted in order to verify users and prevent the leaks, not only by restricting access and encrypting data, but also by monitoring verified users.
This will require the full commitment of the government and all stakeholders, who must support tax reform, especially in the implementation of COTS. Whoever is elected president this year should pay close attention to the country’s tax reform and make sure progress is made within the set timeline.
Last but not the least, as former United States president Barack Obama said: “Change has never been quick. Change has never been simple, or without controversy. Change depends on persistence. Change requires determination.”
The strength of our commitment to this process will lead to a new era of taxation in Indonesia. But it all depends on us and how committed we are to the nation’s reform agenda.
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The writer is an account officer at the Directorate General of Taxation. The views expressed are her own.
