In a short explanation, tax amnesty law offers generous penalties for wealthy individuals and companies who are willing to declare their assets to the government and repatriate their money to Indonesia. This policy provides clear legal umbrella for taxpayers who have not report their asset to the government.
This program is expected to generate a much needed short-term revenues windfall. All in all, the government is hopeful about reaping at least Rp. 165 trillion from the amnesty. The gross revenue from amnesty can be used to plug the budget hole, especially when the revenue is under achieved and expenditure is rising rapidly.
In the long-term, an effective tax amnesty program is expected to increase the tax base and therefore future revenue collection, as tax evaders are brought into the tax system. One has to also consider the amnesty as an integral part of President Joko “Jokowi” Widodo’s tax reform strategies. Especially when it is specifically stated in the road map established by the Directorate General of Taxation that 2016 is the tax amnesty year as a follow up to the 2015 tax education, to be followed by stronger tax enforcement in 2017.
Before further discussing tax office transformation, it is worth noting that, on its own, a tax amnesty has no direct effect in increasing compliance and long-run tax revenue. To become a successful program and thus improve tax office credibility, an amnesty should be combined with other strategies.
There are four solutions that I propose to this program.
First, the government needs to advertise a jargon to change the attitudes for those who are sceptics with this program. Since this program sacrifices a sense of justice, the government has to change the public perception towards this issue. It can be done by socializing that this program is significant to build Indonesia’s economy in the long term. Not only that, the jargon should also encourage those tax evaders to pay their tax, so the enemy is no longer the tax collector but tax frauders. This can be done through socialization through partnerships with medias.
Second, taxpayer data needs to be concerned thoroughly. It is not a secret that taxpayer data is scattered across several investigative agencies and requires due processing. Lack of data and coordination between the tax office and other investigative agencies such as the National Police, Financial Services Authority (OJK) and Financial Transactions Reports and Analysis Centre (PPATK) adds to the problem and results in data-mining with no yield.
In the other side, the government does not have a capacity to collect more taxpayer data to increase the government’s revenue. Instead of collecting more data, the government increases its tax to those who pay their tax consistently.
Through tax amnesty, the government can collects information, such as a full list of assets, liabilities and latest tax return. In order to maximize this policy, the government should also have an access to a taxpayers’ bank account information. This information is crucial to monitor the movement of taxpayers’ funds and therefore more transparent tax reporting in the future. Gaining access to a taxpayers’ bank account information is a crucial step to tax compliance and enforcement, while AEoL (Automatic Exchange of Information) will be implemented in 2018 my members of the Organization for Economic Cooperation and Development (OECD).
By maximizing taxpayer data, the tax office can start targeting the big fish and bring this to the attention of the public. This includes well-publicized seizures of businesses owned by renowned tax evaders and equally well-publicized criminal prosecutions.
Third, tax amnesty should not contradict with the Draft Law (RUU) of Income Tax (PPh), Draft Law of Value Added Tax (VAT) and Luxury Sales Tax (LST), Draft Law of Stamp Duty and Land and Building Tax (PBB), and Draft Law of Banking, which are the major foundation of taxation administration system in Indonesia.
The government must synergize the taxpayer data’s that is being collected with this law to maximize our tax revenue to support our government.
Fourth, the government should focus on increasing the total of tax office’s staff. It is well known that the tax office is severely understaffed, with approximately 30,000 officers to manage an astonishing 25 million individual taxpayers and two million corporate taxpayers. The tax office has indicated that it requires at least 95,000 tax officers to be able to optimally manage the tax administration process and thus achieve its tax revenue target.
When in 2018 tax office is most likely to become a semiautonomous revenues agency — which signifies a new dawn of a strong tax administration in Indonesia, it is expected that we have enough manpower to fill the gap, when the government should develop their system better in collecting tax.
In short, the tax amnesty is a one of the jigsaw piece to provide a window of opportunity for tax fraudsters before new restrictions are put in place and harsher repressive measures are taken against tax evaders. The government should harness this policy effectively to repair our tax system.