Incremental tax reform<\/p>\n
The new package of tax reforms the government will propose to
\nthe House of Representatives next month addresses many of the
\ndeeply rooted concerns of taxpayers over the uncertainty of tax
\nlaw enforcement and their demand for equality with tax officials
\nbefore the law.<\/p>\n
The amendments the government drafted for the three laws of
\n2000 regarding general rules and procedures on taxation, on
\nincome tax and on value-added tax and luxury sales tax
\nrespectively streamline and simplify procedures to reduce costs
\nof compliance and administration.<\/p>\n
The new package of tax reforms are rightly designed to
\nencourage high rates of voluntary tax compliance, to improve
\nconsistency and uniformity in tax administration, to resolve
\nproblems (grievances and complaints) and to increase the costs of
\ntax evasion.<\/p>\n
These measures will help increase tax receipts by broadening
\nthe tax base, create a sound and competitive tax system to
\nstimulate investment and enhance justice in distributing tax
\nburdens and voluntary tax compliance.<\/p>\n
Among the most significant changes will be the provisions in
\nthe law on general rules and procedures on tax that will
\nauthorize the tax directorate general to access data on
\ntaxpayers' assets, business and financial records from banks and
\nother state and private institutions, as well as such
\nprofessionals as accountants, notaries public and consultants.
\nThis broad authority will greatly help tax officials in assessing
\ntax liabilities or verifying tax compliance and identifying and
\nregistering new taxpayers.<\/p>\n
Lack of authority to corroborate (cross check) data on
\npotential taxpayers is one of the main reasons as to why the
\ndirectorate general has thus far succeeded in registering only
\nabout 2.6 million of the country's 220 million population as
\nindividual income tax payers.<\/p>\n
The reforms will improve certainty for the refund or
\nreimbursement of tax overpayments -- one of the greatest
\ncomplaints among taxpayers -- by setting 12 months as the
\ndeadline for the refund process. However, corporate and
\nindividual taxpayers with excellent compliance records will be
\nable to get income tax refunds within three months at the latest
\nand value added tax (VAT) reimbursements within one month at the
\nlatest.<\/p>\n
However, the reforms fail to remove another great concern of
\ntaxpayers over the procedures for tax examination and audits.<\/p>\n
The requirements and procedures for tax examination and audits
\nremain very loose without prescribed time limits, and the scope
\nof audits are still quite broad, thereby putting taxpayers at the
\nmercy of tax auditors. This uncertainty is dreaded by taxpayers
\nbecause the tax directorate general has always been perceived by
\ncitizens as one of the most corrupt public institutions in the
\ncountry.<\/p>\n
It would have been much more sensible if the amendments only
\nstipulated selective audits, meaning that tax audits would be
\nwarranted only after examinations by tax officials produced
\nstrong legal evidence of non-compliance or tax evasion, or when
\ntaxpayers fail to properly file their tax returns.<\/p>\n
An off-site tax examination, which tax director general Hadi
\nPoernomo said last week would be introduced next month, would not
\nhelp remove taxpayers' concern. Even though taxpayers and tax
\nofficials will not have physical contact because tax data and
\ndocuments will be delivered through registered mail, taxpayers
\nwould still remain vulnerable to corrupt officials in so far as
\nthe procedures for and the process of tax examination and audits
\nare not clearly defined in the laws.<\/p>\n
What is also glaringly absent from the amendments are clear-
\ncut provisions for higher standards of accountability for tax
\nofficials. There are no procedures for taxpayers to sue tax
\nofficials for reckless or intentional disregard of general rules
\nor procedures on tax collection.<\/p>\n
Tax officials remain conveniently subject only to internal
\ncontrol at the tax directorate general and the inspectorate
\ngeneral at the finance ministry. Tax officials suspected of tax
\ncrimes will be examined and investigated only by their
\ncolleagues. The amendments do not mention anything about an
\nindependent oversight commission like the one the customs
\ndirectorate general will set up.<\/p>\n
So all in all, the new set of tax reforms, already one year
\nbehind the original schedule, would at best only produce
\nincremental, slow-pace changes targeted at specific technical and
\nadministrative areas.<\/p>\n
We cannot expect much, especially because the amendments to
\nthe tax laws will not likely be strengthened with major
\nstructural and functional changes (transformational changes)
\nwithin the tax directorate general. Like other civil servants,
\ncompensation for tax officials will continue to be based on the
\nseniority and patronage systems, and promotion and pay increases
\nare not strongly related to performance.<\/p>\n
Without transformational changes within the organization, its
\ncompensation and its highly centralized bureaucracies, it is
\nunreasonable to expect the tax directorate general, which
\npossesses such large discretionary powers over taxpayers, to
\nbecome an island of integrity in a sea of corruption.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/incremental-tax-reform-1447893297",
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"sponsor": "Okusi Associates",
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