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Tax amnesties raise revenues in short time but destroy tax culture
Do we need a tax amnesty now? Or, since we have had two amnesties since 2015: Do we need another tax amnesty now?
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West Palembang Ilir Tax Office employees serve taxpayers submitting their annual tax returns on Feb. 29, 2024. (Antara/Nova Wahyudi )
T
he idea of a tax amnesty is unexpectedly back in the public discourse after the House of Representatives confirmed that a bill on another tax pardon is included in its legislative agenda.
As in the 2015 controversy over this subject, the question that we face is this: Do we need a tax amnesty now? Or, since we have had two amnesties since 2015: Do we need another tax amnesty now?
Before we try to answer this question, let us first establish a few basic facts related to our tax system. First, our tax system is still one of the worst performers in the world.
While we may celebrate the third consecutive year of Indonesia’s tax collection surpassing government targets, it should not divert our attention from the more important reality that the Indonesian tax system is still the worst underperformer in the world.
A rehash of the evidence is scarcely needed, at an average of around 11 percent, our tax-to-GDP ratio is one of the lowest not only in the region but worldwide (IMF Government Finance Statistics Database). And this is not a recent phenomenon, the failure of our tax system stretches back decades.
Secondly, in the last 10 years we have had not one but two tax amnesties, first in 2016-2017 and then in 2022. While the details of these amnesties are different, they are still very much the same. They provided a window of opportunity for tax evaders to pay previously unpaid taxes with little or no financial penalties or criminal prosecution that normally accompany the discovery of tax evasion.
Thirdly, Indonesia has introduced a series of tax reforms, beginning in the 1980s, which established our current tax system and continuing to this day with tweaks to the system. Interestingly, the 2016 amnesty is usually billed as one of the major milestones in this reform “journey.”
