Page 3 - Working Paper (The Myths and Realities of Tax Performance Under Semi-Autonomous Revenue Authorities)

DDTC Working Paper 0213
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“IT IS InTeReSTIng To noTe how MAny of

The gReAT ScIenTIfIc dIScoveRIeS begIn AS

MyThS.”

-Rollo May, The CRy foR MyTh, 1992

1. Introduction performance of the SARA model of taxation. Thus, it
is norma to have pros and cons regarding the role of
During the last 4 months, discussions over institutions, especially the SARA model of taxation
factors related to institutional capacity and models for performance improvement. This article seeks
of tax administration often more took place in to fill this gap, by analyzing differences in taxation
many occasions in Indonesia. There is a strong situation and the impact on the performance of the
desire or at least a great curiosity about: what if SARA model of taxation, particularly in an effort to
the tax authorities in Indonesia are given greater improve revenue collection. In addition, this article
authority so as to become more autonomous? In also explores main factors behind the decision to
other words, what if the Directorate General of implement SARA.
Taxes is separated from the Ministry of Finance
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and becomes an independent institution? 2. Why SARA needs to be Considered?
Currently, model of tax authorities under the
From the scientific perspective of public policy,
Ministry of Finance around the world is slowly
management, and economics, institutional aspects
being abandoned. There are growing trends of
are considered as the framework that govern
separation of the tax administration from the
the functions or interactions among players.
Ministry of Finance, especially in the last two
Furthermore, institutions provide guidance
decades. Many countries have established more
that ensure each agency works optimally and
autonomous tax institution known as Semi-
not deviate from the established corridor. Thus,
Autonomous Revenue Authority, hereinafter
it is not surprising that tax reforms in various
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referred to as SARA. The main justification of this
countries include seeking the ideal form of tax
phenomenon departs from the needs to collect
institution. Over this fact, radical changes into the
sustainable revenue, better services, as well as
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tax authorities suggested including making the
improvement of governance in tax sector.
tax authorities into a more autonomous institution
However, the idea is not without criticism. which runs like a private company.
Some relevant parties see the weak performance
SARA is a term that refers to the institutional
of tax collection in Indonesia is not solely caused
framework and governance for organizations
by institutional factors. Thus, they suggest that
involved in the collection administration, where
redesign of tax administration or transformation to
the framework is to provide a greater autonomy
a model of SARA is not necessary. In addition, there
than regular departments or directorates under
might be potential costs that might have arisen
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the Ministry. Basically, the word “autonomous”
due to this institutional redesign which is not
can be interpreted as independence or self-
necessarily improve the performance of taxation.
government. In the context of public administration,
The debate among academics about whether or autonomous generally refers to the extent to which
not the SARA model should be adopted has been a government agency is capable of operating
taking place for quite some time. Many literatures independently covering several aspects such as
provides evidence of success and weakness of funding and budgeting, finance, human resources,
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SARA model in various countries. Unfortunately, and administrative aspects. As an autonomous
there are very limited empirical study to date on the
4 See Rosario G. Manasan, “Tax Administration Reform: (Semi-)
Autonomous Revenue Authority Anyone?” Discussion Paper Series No.
2 Based on our observation, the first article that provides complete 2003-05, Philippine Institute for Development Studies, 4.
institutional analysis about tax authority in Indonesia was provided 5 As mentioned by William Crandall dan Maureen Kidd, “Revenue
by Darussalam, B. Bawono Kristiaji, and Hiyashinta Klise, “Desain Administration: Autonomy in Tax Administration and the Revenue
Kelembagaan Administrasi Perpajakan: Perlukah Ditjen Pajak Terpisah Authority,” IMF Technical Notes and Manuals, (2010). … is simply a
dari Kementerian Keuangan“ Inside Tax Edisi 16 (Juli-Agustus, 2013): term to describe a governance regime for an organization engaged in
6 – 15, 62 - 65. Although, ideas and opinions about the prospect in revenue administration that provides for more autonomy than that
Indonesia not new. afforded a normal directorate in an ministry.”
3 Previous literature named this term as Revenue Authority Model or 6 William Crandall, “Revenue Administration: Autonomy in Tax
Unified Semi-Autonomous Revenue Bodies. Administration and the Revenue Authority Model,” IMF Technical Notes