Page 7 - Working Paper (Asymmetric Information & Its Impact On Tax Compliance Cost In Indonesia)

DDTC Working Paper 0113 DDTC Working Paper 0113
7

It should be noted that in Indonesia the tax court is lack of legal resources (absence of clear
14
procedure is limited to only one level , which may regulation, literature, case law and others). In
cause a negative incentive for taxpayers to process such case, the tax court will favor a decision to
their case in the tax court. At the same time, the party, who has signaled most accordingly.
there will be a high probability of an increasing As could be observed previously in interaction
compliance cost, because taxpayers will be forced model layer 1, an asymmetric information situation
to finalize their case in its favor at this stage. 15 could already arise between the direct interactions
of taxpayers with the tax authorities. The intention
The following illustrated Interaction model
to involve tax consultants and the court in this
layer 3:
context should have been to resolve or decrease
Figure 4 - Interaction model layer 3 this asymmetric information situation. Instead, the
involvement of parties has in practice contributed
to the opposite. An explanation to this could be
X
due to the fact that each party involved is triggered
to use asymmetric information situation for self-
interests.

OP WP 3.4. Interaction model layer 4
The involvement of the public in social issues
in general, including taxation issues specifically,
has in principle the purpose as a social check. In
KP relation to this are three fundamental questions:

1. What kind of public could contribute positively
to asymmetric information situations?;
2. Could the public resolve asymmetric
PP information situations?; and
3. What could encourage the public to successfully
resolve asymmetric information situations?
Notes: X = Regulation; OP = Tax Authorities; WP = Taxpayers;
KP = Tax Consultants; PP = Tax Court The public in this context is assumed to be the
press and public figures because their influence in
The following are the issues in interaction
forming public opinions. In order to perform a social
model layer 3:
check accordingly, the public should be critical
i. In an asymmetric information situation, in nature and supported by sufficient accurate
the tax consultant may potential attempt to information. It is therefore of importance that the
monopolize information from the taxpayer. In public possess a sufficient level of knowledge on
other words, tax consultant may attempt to current taxation issues.
avoid information from directly reaching the
In this context, the press should have specialized
taxpayer by for example avoiding taxpayers to
journalists that have a well understanding on
interact directly with tax authorities and/or
taxation issues in order to perform their social
tax court. In this way, the information provided
responsibility to inform the public on accurate
by the tax consultant will be the only source of
information. Besides the above, the press should
information for the taxpayer.
maintain a track record on public figures, which
ii. The absence of transparency in the tax court
includes academicians, observers as well as
could encourage abuse of authority and lack of
practitioners who are also involved in the previous
quality in reasoning and arguments. This takes
interaction layers. This is required because the
place even more, if the issue at hand relates to
press also acts as a filter of inaccurate and/or
complex cases of interpretation where there
deviated information, which could prevent the
forming of asymmetric information situations.
14 According to article 33 paragraph (1) Law No. 14, Year 2002, the
tax court is the competent court for making decisions regarding with tax
issues at the first and last instance. Article 77 paragraph (1) Law No.14, The success of the public in resolving
Year 2002 further states that decisions made by the tax court are final asymmetric information situation also depends on
decisions with legally binding powers, such that no further legal remedies information transparency in previous interaction
(cassation) is available. However according to Article 77 paragraph (3)
Law No. 14 Year 2002, in certain circumstances (such as “novum”), models. Therefore, it is important that the public
a judicial review may be proposed to the Supreme Court. This is in is granted the right to access information and the
accordance with Article 24 paragraph (2) of the Constitution which states
that tax court capacity falls under the scope of the Supreme Court right to demand of transparency in the tax system.
15 Please note that there is also a 100% penalty if taxpayers lose at the The following illustrates model interaction layer 4:
tax court.