Page 5 - Working Paper (Asymmetric Information & Its Impact On Tax Compliance Cost In Indonesia)

DDTC Working Paper 0113 DDTC Working Paper 0113
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regulations that are not known by taxpayers also Figure 2 - Interaction model layer 1
contributes to asymmetric information. There are
at least three factors that influence the relationship
X
between regulations and asymmetric information:
i. Regulations that are drafted in such way that
arises multi-interpretations by both taxpayers
and tax authorities alike. Not clearly defined OP WP
regulations will blur the rights and obligations
that is agreed between the parties, which in turn
may lead to: moral hazard and adverse selection. Notes: X = Regulation; OP = Tax Authorities; WP = Taxpayers
ii. Representation of taxpayers in drafting the
are often publicized through Directorate General
regulations. Every aspect of taxation should
of Taxes Regulations, which are not necessarily
take in considerations the people’s choice.
publicized through Government Gazettes. As such,
In Indonesia this is stated in the Article 28h
the need for socialization campaigns becomes
paragraph (4) of the Constitution:
relevant in this context. 9
“Each person has the right to own private
property and such ownership shall not be Currently however taxpayers are fortunate
appropriated arbitrarily by whomsoever” enough because, external parties are able to provide
10
online services (often also for free) in monitoring
Whereas Article 23A of the Constitution states: tax information and its developments. Moreover
the information technology available today, enables
“Taxes and other compulsory levies required for taxpayers to navigate through the complexity of
the needs of the state are to be regulated by law” various regulations in more organized way, making
it easy for taxpayers to find relevant regulations
From the above, it could be concluded that
more efficiently. This development is further
Indonesia recognizes the concept of “private
strengthening by the initiative from the Directorate
property” and allows the levy of taxes, however
General of Taxes by forming a Tax Socialization
only if such taxes are regulated by law, which
Team in each district office. 11
is a product of public representation (public
choice). Compliance cost in the context of interaction
iii. Complexity of tax system could increase the model layer 1 is more influenced by the quality
potential to arise asymmetric information of regulations and how information regarding
situations. Generally, tax authorities are more these regulations is available to the parties. In
familiar to the details of tax regulations if order to have an equal distribution of information,
corporate taxpayers will often incur mandatory
compared to the taxpayer. This may lead to
a situation where possession of information costs, i.e. salary expenses for staff. When the tax
is not balanced between tax authorities and system is complex and/or information difficult to
taxpayers. Consequently this situation may obtain, then corporate taxpayers will often face
drive one of the parties to conduct signaling with voluntary cost, i.e. cost for external advisers.
to the other party. As example: tax authorities
3.2. Interaction model layer 2
may create a situation where taxpayers feel as
if they have made a mistake in reporting their
In interaction model layer 2, besides taxpayer
tax obligations.
and tax authority, an additional party, the tax
consultant is also involved. The tax consultant
Interaction model layer 1 could be illustrated as
is an external party who has a power of attorney
Figure 2.
to represent the taxpayer and is assumed to have
Besides the above, another issue is how far sufficient information and expertise regarding
regulations are socialized /informed evenly and taxes.
balanced to all taxpayers. As long as regulations
The need for external advisers is recognized
are published through Government Gazettes, then
under Ministry of Finance Regulation No. 22/
8
the legal fiction applies and the Government has
PMK.03/2008. According to this regulation, only
in principle no further obligation to inform the
public regarding the enacted regulations. However,
technical details on the application of tax laws 9 Since Indonesia adopt self-assessment system, advance ruling is
necessary. Further, in several countries, the move to a self-assessment
system was the direct and primary reason to adopt a system of formal
advance rulings.
8 Legal fiction is a fact assumed or created by the Law, in which all
subjects of the Law are assumed to know and understand the Law in a 10 For example: Ortax, PajakOnline, and others
way binding to them. 11 As announced in letter No. SE-99/PJ/2011