New Perspective of Indonesia Comprehensive Reform: … · 2006 2007 2008 2009 2010 2011 2012 2013...

Yustinus PrastowoExecutive Director, Center for Indonesia Taxation Analysis

Symposium on Tax and Corruption:An Asia-Pacific PerspectivesSydney, 12th-13th of April 2017

New Perspective of Indonesia Comprehensive Reform:

Integrating Corruption Eradication and Tax Optimisation Agenda

Center for IndonesiaTaxation Analysis

2


Background

3

Tax Compliance in IndonesiaReview of Indonesia Tax Amnesty Program

Corruption Perception in Indonesia


Indonesia Has Low Tax Revenue Performance 2006-2016the target has never been achieved, except in 2008

4

107%

94% 95% 97%94% 93% 92%

82%

81,4%

0%

20%

40%

60%

80%

100%

120%

0

200

400

600

800

1000

1200

1400

1600

2008 2009 2010 2011 2012 2013 2014 2015 2016

Target Realization % realization

IDR Tn

Source: State Budget Report


5

Indonesia Tax Ratio is calculated by Central Tax Revenue / GDP

Source: http://data.worldbank.org/indicator/

9,33 9,30 9,4811,03 10,93 10,54 10,31 10,36 10,73 10,89 10,70

0

5

10

15

20

25

30

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Indonesia OECD Singapore Malaysia

Brazil Russia South Africa Lower middle income

Indonesia Has Low Tax Revenue Performance 2006-2016tax ratio is relatively low…


49,4%

30,2%33,1%

54,1%58,1%

46,3%

53,7%

61,0%58,7% 60,0%

62,4%

0%

10%

20%

30%

40%

50%

60%

70%

0

5

10

15

20

25

30

35

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

In M

illio

n

Registered Taxpayer SPT Registered Taxpayer

Taxpayer that already have reported tax return Compliance Ratio

Indonesia is still haunted by low compliance of both individual and corporate taxpayers…

Source: DGT, MoF


Who are they???7

Indonesia faced various mega-corruption scandals…involve government officials from executives, legislatives, and judiciaries, have caused the tax fund wasteful


8

Facts in Indonesia

There are many bribery and extortion case that involve public

officials of DGT institutions, such as;

Bribery Case Extortion case

Gayus Tambunan; Dhana Widyatmika; Bahasyim Assifie;

Mohammad Dian Irwan Nuqisra and Eko Darmayanto; and

Tommy Hendratno.

Corruption scandal occurred recently involving Handang

Sukarno, from Directorate of Law Enforcement, DGT.

Pargono Riyadi; Herry Setiadji, Indarto

Catur Nugroho and Slamet Riyana.

Recently the e-KTP corruption cases erode government fund about IDR 2 trillion.

In 2016, Indonesia faces many corruption scandals >> about 482 case

With total revenue losses IDR 147 tn

(ICW Annual Report, 2016)


9

32 32

34

36

37

118 114 107

88 90

0

20

40

60

80

100

120

140

29

30

31

32

33

34

35

36

37

38

2012 2013 2014 2015 2016

Ran

k

Sco

re

Score Rank

Indonesia Corruption Perception Index

Source:http://www.transparency.org/news/feature/corruption_perceptions_index_2016


10

0,00%

5,00%

10,00%

15,00%

20,00%

25,00%

30,00%

35,00%

0

10

20

30

40

50

60

70

80

90

100

tax ratio vs corruption perception index 2012-2015

CPI tax ratio

Source: http://data.worldbank.org/indicator, http://www.transparency.org/news/feature/corruption_perceptions_index_2016


Corruption Potential based on Sector in Indonesia

11

46

52

51

50

47

53

44

57

51

53

60

47

44

52

57

57

54

52

57

48

62

55

58

63

52

49

59

63

64

61

59

63

56

66

61

63

67

58

56

Licencing

Basic Services

Taxation

Procurement

Justice

publishing trade quotas

Police

Credit

Customs and Excises

Supervisors and Examinors Institutions

Military

Excecutive

Legislative

Score

2015 2014 2013

Source: Indonesia Transparency International (Corruption Perception Survey 2015)


Bribery Interactions at Vertical Institutions

12

17%

26%

22%

41%

35%

13%

43%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0

100

200

300

400

500

600

Regional Office ofProvincial

Directorate Generalof Tax


Directorate ofTreasury


Directorate of StateAsset

Regional Police Provincial LandNational Agency

University High Court

Vertical Institutions

Interaction Experience Bribery Interaction Bribery Probability

Source: Indonesia Transparency International (Corruption Perception Survey 2015)


Low Tax Compliance

13

inadequate number

of tax officials,

which in 2015 there

were only 37.987.

From that number,

tax auditors were

only 4,552

(Directorate General

of Tax, 2015).

limited access to

financial account

because of

confidentiality as

stipulated in Law

No. 10 Year

1998.

lack of trust in government is also

believed to be one factor that affect low

level of tax compliance.

lack of enforcement derived

from lack of DGT capability to

optimize tax revenue.

Andreoni et al. (1998)

social factors play an

important role in tax

compliance decisions.

Hosmer (1995),

trust is an important social

factor due to its significant

impact on individual behavior,

relationships, and economic

exchanges

Zucker (1986, p. 56)

trust is vital for the maintenance of

cooperation in society and

necessary as grounds for even the

most routine, everyday interactions

Lewisand Weigert (1985, p.

968)

trust is a collective attribute

that is driven by the

relationships of people within

a social system and is based

on a cognitive process which

allows differentiating persons

and institutions that are

trustworthy from the ones

that are not

Problem


14

Why people are losing their trust on Government???

Participation level of taxpayer in fulfilling their tax liability are strongly affected by their perception

on government, whether the government free from corruption practice (Bekaoui:2008),

provide the best service (Togler: 2007)


Any person who violates the provisions of the Act which

expressly states that the violation of the provisions of

the Act such as corruption applicable provisions laid

down in this Act (Arti. 14 Anti Corruption Act)

Disharmony Between Anti-Corruption Law and Other Regulation

Supreme Court Law No. 13 of 2016

concerning Procedure of Handling Criminal Act for Cooperation

KUP Law

Law No. 8 of 2010 concerning

Countermeasure and Eradiction of Criminal

Act of Money LaunderingOther

Taxation Law

Need to amend and harmonize all of those regulations


What’s the matter with Anti-Corruption Law?

16

Anti-Corruption Law is only for state officials

It is unable to reach private sector, both for individual or

corporation who causes harmthe state finance or the economy of the country


17

Optimal Tax

Revenue

Tax Compliance

Excellent bureaucracy,

Integrity and

Professional Institutions.

Tax Payer

Consciousness

Social Capital


The aim of this paper

18

low level of tax compliance in Indonesia lack of trust to the government

Corruption

Does corruption,

especially corruption in

tax sector affect the level of tax

compliance in Indonesia??

KPK DGT How the synergy between Corruption Eradication Commission

(KPK) and Directorate General of Tax (DGT) should be established

in order increase tax compliance level?


THEORY OF TAX COMPLIANCEand its relation with corruption


Taxpayer non-compliers are rational individuals.They seek to maximize their own well-being, but through illegal instead of legal means.

Compliance Theory and Self-reporting


Slippery Slope Framework(Kirchler, Hoelzl, and Wahl 2008)

Quasi Voluntary:

• Perceptions to the

government, whether free of

corruption

(Belkaoui & Riahi, 2008),

• Participative in the preparation

of tax legislation

(Torgler 2005),

• The strength of the overall

construction with the tax

system

(Brautigam, Fjeldstad, &

Moore, 2008).

“Trust in Authority”“Power of Authority”


Solutions by the Government to gain public trusts

22

enacted Law No. 31 Year 1999 about

Corruption Eradication as amended by Law

No. 20 Year 2001 (Anti-Corruption Law)

formed a special agency dealing with corruption

cases, KPK through Law No. 30 Year 2002

about the Corruption Eradication Commission.

KPK is an independent state institution that is free from influence of any authority

in carrying out its duties and authorities. So far, KPK is one of government institution

that most trusted since its considered high integrity, neutral from conflict of interests, and

consistent in performance.


23

Breakthroughs created by KPK in 2016

Integration at the Coordination and Supervision of

Prevention by providing prosecution field. As the result,

the institution will be able to obtain more data and facts

on the target area program.

Increasing the deterrent effect by adding the

prosecution intensity including Operasi Tangkap Tangan

(OTT). In 2016, OTT by KPK is the most OTT of KPK

history.

Launching e-LHKPN application. This application

provides facility to state officials at remote areas to

report his/her wealth without coming to the capital city.

Source: Annual Report of KPK 2016


Proposed Solutions:

Integration of Combating Corruption And

Improving Tax Compliance


Harmonization of Anti-Corruption Law and Tax Law

Corruption Not the only one factor, but these factors remain important

Tax Compliance

Law Enforcement

Taxpayer ‘s Trust to DGT

Corruption Case

inversely proportional

directly proportional

inversely proportional


KPK DGT

Corruption Eradication

Tax Authority

legislation that underpins the existence and execution of their

duties stand alone

Separate Authorities

Tax: biggest instrument of the

state income

Need KPK’s role to eradication

of corruption in taxation sector

prone to be abused


Any person who acts unlawfully to enrich themselves or another person or a corporation that is detrimental to the state finance and economy of country (Art. 2)

does not include fraudulent schemes and tax fraud that causes state financial loss

.: Corruption Meaning in Anti-Corruption Law

clause “State Economic” should be cleared to be space to accommodate the corruption in taxation areas

"Any person with the intention of enriching themself or another person or corporation, abuse of authority, opportunity or means available to him because of the position or positions that could harm the state finance or the economy of the country ...“ (Art. 3)

Preventing

Coordination, Supervision, Monitoring

Article 1 KPK Law“Corruption Eradiction a series of actions to prevent and combat corruption through the efforts of coordination, supervision, monitoring, investigation, prosecution and examination in court, with the participation of community based regulation applicable


Cooperation of DJP, KPK, PPATK, and OJK


Directorate General of Tax and Fiscal Service Authority

Akasia Akrab

DGT Financial Service Authority

Akasia makes it easier to access the suspicious financial transaction for examination,

investigation, and billing.

Constraints:

• DGT still under the Ministry of Finance • Banking secrecy

Taxpayer’sSuspicious financial data


Examination and/or investigation of taxpayer involved in corruption and already convicted by permanent legal force

Establishment of special purpose of Tax Office for taxpayers who will

submit Wealth of State Officer Report (called as LHKPN)

Directorate General of Tax and Corruption Eradication Commission

DGT

1

2


The Government should also considering DGT to conduct joint audit with other institutions that have investigators…

DGT

DG Customs and Excise

Indonesian National Police

Ministry of Environmentand Forestry

Ministry of Marine and Fisheries Others

Joint Audit

Moreover, DGT officials should be protected by law in collecting tax / conducting audit from rogue taxpayers.


DGT DG Customsand Excise

Ministry of Finance

President President

RevenueAuthority

Authority to manage own Budget, human resource, and organization

Credible Accountable

responsibility

responsibility

responsibility

Organization Transformation


TAX AMNESTY AS BEGINNING MOMENTUM OF COMPREHENSIVE

REFORM AGENDA


34

965.9

83

2.0

00.0

00

R E A L I Z A T I O N T A R GE T

PARTICIPANT

135

165

REAL IZATION TARGET

TAX COLLECTION

4.8

86

4.0

00

REALIZATION TARGET

DISCLOSED ASSET

147

1.0

00

REAL IZATION TARGET

REPATRIATION COMMITMENT

Review of Indonesia Tax Amnesty ProgramSummary

Participant of tax amnesty program did not reach the target. Moreover, this number was smaller than participant of Sunset Policy in 2008 , which approximately 5,6 million new taxpayers (Directorate General of Tax, 2009).

In addition, low amount of repatriated asset commitment, at Rp147 trillion, under the target of Rp1000 trillion.

82%122%

14,7%

48%

Source: DGT, MoF


2016 tax amnesty is the bridge toward comprehensive tax reform that not only related to tax law, but also integration of the tax aspects in Anti-Corruption Law.

Revision of the Law on Taxation, Banking Law, and the Anti-Corruption Law;

Enhance tax authorities access to financial data and

banking;

institutional transformation by building a credible,

competent, and accountable tax authority.

strengthen coordination of law enforcement institutions,

including KPK as an institution eradication of

corruption

improving tax administration by automation, digitization,

and implementation of single identification number (SIN).

The preconditions for a strong tax system after

tax amnesty

Reform momentum: Tax Amnesty


36

CONCLUSION AND POLICY RECOMMENDATION

The Anti-Corruption Law and KPK become important to be paid attention to improve tax compliance.

To integrate anti-corruption and tax optimization agenda, the government needs to revise the Anti-Corruption Law and Tax Law.

Governments need to design a new structure of coordination between government institutions, including KPK, DGP, Indonesia Financial Service Authority (OJK), and Indonesian Financial Transaction Reports and Analysis Center (PPATK).

Redesign the architecture of budget policy by implementing earmarking model into specific public sector.

By bringing this comprehensive reform agenda, it will be an effective strategy to increase the level of tax compliance because in the same time, the corruption eradication agenda, the strengthening of tax administration capacity, the quality of government expenditure, and better coordination of government institution will increase the level of taxpayers’ trust.


37

T H A N K Y O U


Wisma Korindo 5th FloorJalan MT. Haryono Kav. 62, Pancoran, Jakarta Selatan

New Perspective of Indonesia Comprehensive Reform: … · 2006 2007 2008 2009 2010 2011 2012 2013...

Documents

Transcript of New Perspective of Indonesia Comprehensive Reform: … · 2006 2007 2008 2009 2010 2011 2012 2013...