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Corrupt tax auditors
But the uncovering of the latest big corruption cases shows that the tax directorate’s internal control and compliance directorates seem utterly incompetent.
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W
e were painfully surprised by the preliminary findings of the Corruption Eradication Commission’s (KPK) investigation into the latest wave of corruption cases at the Taxation Directorate General alleging that two senior auditors had bilked millions of dollars in bribes out of three companies between 2016 and 2019 without raising suspicions from the tax directorate’s internal control department.
Yet more worrisome is that the findings seem to only be the top of the iceberg.
The latest scandal should understandably shock Finance Minister Sri Mulyani Indrawati, who in early 2010, in her capacity also as the finance minister at that time, instituted a series of draconian measures to reform the tax directorate’s internal control and compliance directorate to detect any malfeasance early on.
She ordered senior tax officials to allow her to check their tax payment records, bank accounts and asset balance sheets, and those of their spouses, if necessary, to verify their wealth against their civil servant salaries. She even asked the Financial Transaction Reports and Analysis Centre (PPATK) to check money flows through the bank accounts of tax officials highly vulnerable to graft.
Involving the politically independent PPATK in examining tax officials’ bank accounts and then checking the accounts against the annual income tax returns filed by the officials could help uncover malfeasance and any ill-gotten wealth of officials.
Those radical measures were taken in early 2010 in the wake of several big tax scandals between 2008 and 2010 that implicated tax officials and involved the equivalent of millions of dollars in bribes. It was the PPATK’s reports on suspicious transactions through the bank accounts of tax officers that led to the unveiling of the corruption cases.
But the uncovering of the latest big corruption cases shows that the tax directorate’s internal control and compliance directorates, which should primarily be responsible for detecting any indication of graft early on, seem utterly incompetent.
The internal control directorate cannot blame a lack of human resources for its incompetence because it could have focused its monitoring and oversight on officials engaged in tax assessment, examination and auditing those who are usually most vulnerable to corruption.
Even if corrupt officials took cash bribes, the ill-gotten money of suspected tax auditors could still be traced to the National Land Agency and the car registration department at the National Police. The internal control directorate also seemed oblivious to the lifestyles of many tax auditors, who are conspicuously rich, way beyond their official means of income. In fact, we doubt that the annual tax returns of tax officials have ever been audited.
Effective internal control is crucial to prevent malfeasance and nurturing tax culture, as well as voluntary tax compliance. Only with higher competence and stronger integrity will the tax directorate be able to fully enforce the tax laws, which in turn is a prerequisite to building up a stronger deterrence to tax evasion and other tax crimes.
Protracted distrust in the tax directorate would adversely affect voluntary tax compliance. Taxpayers will try their best to avoid and evade paying taxes to the officials and government they perceive to be grossly corrupt.
