Page 10 - Working Paper (Tax Policy Options during Economic Downturn)

DDTC Working Paper 1315
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taxpayers in terms of uncertainties in the laws As abovementioned, this year the government
and countless regulations, complex tax returns, has conducted various fiscal and monetary mix
excessive information reporting requirements, and policies to anticipate challenging global economic
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poor taxpayer services . These costs discourage trends that affecting Indonesia’s economy.
voluntary compliance and have contributed Following budget revision in January 2015, the
significantly to the large numbers of taxpayers government needs to execute its reform agenda
who, intentionally or unintentionally, fail to fulfill that are particularly focusing on infrastructure,
their tax obligations. maritime, agriculture, and social programs.
Effective execution of the budget will require
To improve taxpayer’s compliance, the DGT has increasing in budgeted revenues. However, the
formulated and implemented strategies on program government will likely face the challenge of
and activity that can keenly increase taxpayers’ adjusting spending to account for lowers than
attentiveness and voluntary compliance, especially expected realized revenues. Tax revenue accounted
for the non-compliance taxpayer and effective only 94 percent of the 2014 revised budget target
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law enforcement . For a system based on self- of IDR 1,635.4 trillion.
assessment to be effective, taxpayers must believe
that if they or their competitors fail to comply with Lower value-added tax (VAT) growth was a
their tax obligations, there is a reasonable chance major contribution to the weak performance of
that they will be detected and fined. Once they are revenue in 2014. VAT collection growth in 2014
caught, sanctions will be imposed and are sufficient was only 5.8 percent, relative to an 18.8 percent
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to offset the potential benefits of noncompliance . average for 2009 to 2013 and only 85.1 percent
relative to the revised 2014 Budget target. Recent
Transformation of an ICT system is very
announcement to extend tax holiday from the
important key factor that will enhance transparency
current 10 years to a maximum 20 years intends
and improve tax compliance rate. The DGT has
to attract more foreign direct investments and
also developed the data processing center that
support employment creation. Eventually, an
gathers data from tax returns, tax payments, and
increase in employment leads to positive private
third-party reports. Improvement in an ICT system
consumption growth and provide multiplier effect
has also shortened the filling process and reduced
to VAT revenues. The government also considers
interfaced communication between tax authority
implementing cash transfer program to help the
and payers. In essence, an increase in tax revenue
poor and push private consumption as an engine
may come from sustainable administration reform
of growth.
that can overcome the present shortcomings
such as inadequate legislation, poor organization, At the end of this year, the government sets a
inefficient human resources of DGT, and pervasive relatively optimistic target of IDR 1,489 trillion for
corruption. However, external factors such as tax revenue as stated in the revised budget. In the
changes of economic trends would also have a first five month of 2015, total revenue only reached
tremendous impact to tax revenue. The current IDR 533.4 trillion or represents only 30.3 percent
reform has led on the improvement in the number of the annual target, compared with an average
of registered taxpayers. The number of registered of 35.3 percent in the last five years. Nominal tax
taxpayers increased significantly from 2.52 million revenue declined by 1.3 percent y-o-y in January
in 2001 to around 4 million in 2005. to May 2015, in sharp contrast to the targeted
increase of 30 percent for a full year in the 2015
In 2005, the DGT launched a crash program on 10 revised budget . Revenues from all major tax
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million of Tax Identification Number (TIN). Millions categories contracted, with the exception of non-oil
of new taxpayers were netted on this program and gas income taxes, which contributed a positive
through data of property and car ownership, credit 3.5 percentage points to the nominal year-on-year
cards, and other financial transactions. Sunset growth of total revenues.
Policy, classifies as revision amnesty that granted
by the GOI to noncompliant in 2008, contributed to Moreover, during half period of 2015 receipt
the increasing number of taxpayers of around 5.36 from value added tax (VAT) declined by 4.7
million people and as much of IDR 7.46 trillion. percent y-o-y, contributing to one percent y-o-y
However, as of January 2009, the ratio of stop filer to overall nominal revenue growth. This in line
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is pretty high at approximately 47.39% . with the weaker growth of domestic consumption
and drops in imports during the first quarter of
23. The Government and National Parliment are currently in the process
of revising Tax Law which will be enacted in 2016.
taxpayers who stopped filing their return and keep filling their return.
24. Rizal (2012), op cit. Among the effective registered taxpayers, not all of them report their taxes
25. Directorate General of Tax, Ministry of Finance (2003),”Strategic correctly as reflected in the result of the tax audit. However, there were
Paper of the DGT, Ministry of Finance Decree No. 85/KMK.03/2003. many cases of accidently under-reporting tax filling.
26. Ratio of stop flier is the ratio between the number of registered 27. World Bank, op cit, page 12.