JP\/3\/CHATIB<\/p>\n
Corruption a constraint to achieving tax revenue target<\/p>\n
The government, under its budget plan recently proposed to the
\nlegislature aims to increase its total tax and excise revenue by
\n18.7 percent to Rp 260.78 trillion (nearly US$30 billion) next
\nyear from Rp 219.62 trillion expected this year. Muhammad Chatib
\nBasri, associate director of the University of Indonesia's
\nInstitute for Economic and Social Research (LPEM), talked to The
\nJakarta Post contributor Rikza Abdullah.<\/p>\n
Question: Is the government's target of increasing its revenue
\nfrom taxes and excise by 18.7 percent next year realistic?<\/p>\n
Answer: The targeted revenue of Rp 260.78 trillion for 2003 is
\nstill too low because it will amount to only 13.3 percent of the
\ncountry's gross domestic product (GDP) (projected to reach Rp
\n1,955.47 trillion that year). This will indicate a slight
\nincrease from this year's target of Rp 219.62 trillion, which
\nwill be 13 percent of the GDP (projected at Rp 1,685.38
\ntrillion). In other countries tax collection can exceed 15
\npercent of their GDPs.<\/p>\n
But the 2003 target would be very difficult to achieve if the
\ngovernment did not intensify its tax collection and improve its
\ntax administration. The current poor tax collection has made it
\neasy for companies and people to avoid tax payment, while the
\npoor tax administration has made it possible for tax officials
\nand taxpayers to collaborate in corruption.<\/p>\n
So, the expected increase in tax revenue will be reasonable if
\nthe tax collection is intensified and the tax administration is
\nimproved.<\/p>\n
Which is the larger amount, the amount of money siphoned off
\nby tax officials or the amount that should have been paid by tax
\nevaders?<\/p>\n
Maybe it's the amount of money siphoned off by tax officials.
\nBut that will surely depend on each case. Some taxpayer, who does
\nnot want to pay an income tax of Rp 600 million, would prefer to
\npay Rp 150 million (as a bribe) to tax officials so he could pay
\nonly Rp 50 million for the tax.<\/p>\n
How can the government, with such a condition, expect that the
\ncountry's economy will grow by 5 percent in 2003?<\/p>\n
The expectation of the GDP to grow by 5 percent in 2003 does
\nnot make sense to me. But my consideration is not related to the
\nplanned increase in tax collection and reduction of subsidies
\nbecause the impact of energy (fuel and electricity) price
\nincreases is not substantial and the planned increase in tax
\ncollection is not significant.<\/p>\n
Because the country's GDP grew by 3.3 percent in 2001, when
\nthe world economy was slowing down, it is reasonable if we expect
\nthe GDP to grow by 3.8 percent this year due to improvement in
\nthe world economy.<\/p>\n
But it would be unrealistic if we project the GDP to expand
\ndrastically to reach 5 percent in 2003 with no improvement in
\ninvestment. Domestic investment will not increase significantly
\nthat year because banks are still reluctant to channel credits to
\ncompanies, while foreign investors are scared to enter Indonesia
\ndue to social and labor unrest as well as business uncertainty.<\/p>\n
How far will the GDP grow?<\/p>\n
Based on the optimistic scenario by the LPEM, the GDP is
\nlikely to grow by 4.4 percent in 2003.<\/p>\n
Is it realistic for the government to increase its revenue
\nfrom income taxes on non-oil sectors by 27 percent for 2002?<\/p>\n
It would be too hard. Its success will depend mostly on
\nwhether the government can identify and force tax evaders to pay
\ntheir income taxes and all tax officials to pass on all income
\ntax payments to the state treasury. Corruption related to the
\ncollection of income taxes is relatively easier and larger in the
\namounts of money involved than that related to value added tax.<\/p>\n
Many business people, therefore, complain on corruption
\nrelated to income tax. Some executives of the 1,700 companies
\nsurveyed by the LPEM recently said they would rather allow the
\ngovernment to impose an extra tax of some 7 percent to 8 percent
\non their incomes than to pay bribes, which can reach 10 percent
\nof their incomes, to corrupt tax officials.<\/p>\n
How can the government expect its revenue from value added tax
\n(VAT) to increase by 17.1 percent to Rp 82 trillion in 2003 ?<\/p>\n
This target is easy to achieve because domestic consumption is
\nlikely to continue growing at an annual rate of 6 percent and,
\ntherefore, will remain strong. The planned reduction of subsidies
\nwill not boost inflation because the country's inflation is
\ninfluenced more by the fluctuations of the rupiah's value than
\nthe movements of fuel prices.<\/p>\n
The recent experience indicates that the inflation rate was on
\na downward trend in the months following fuel price increases in
\nJanuary, because the rupiah's value appreciated against the U.S.
\ndollar.<\/p>\n
Will the smuggling of manufactured goods into the country
\naffect the VAT revenue target?<\/p>\n
The smuggling of manufactured goods will affect domestic
\nproducers, who have to pay taxes, in competing against such
\nuntaxed imported products. But it is unlikely to cause VAT
\ncollection to fall short of the target.<\/p>\n
The targeted revenue of Rp 82 trillion, which would be equal
\nto about 4.2 percent of the country's GDP, is still too low. The
\ngovernment's VAT revenue should actually be able to reach 8
\npercent of the country's GDP (projected at Rp 1,955.47 trillion).<\/p>\n
Will the government face difficulties in raising its revenue
\nfrom excise on cigarettes to Rp 27.64 trillion in 2003?<\/p>\n
Yes, it will. Even though smokers have a difficult time
\nquitting, their cigarette consumption will decrease when
\ncigarette prices increase. The sales of cigarettes during the
\nfirst seven months of this year declined due to an increase in
\nprice.<\/p>\n
How about the government's expectation to increase revenue
\nfrom import duties to Rp 13.82 trillion from Rp 12.25 trillion,
\nwhile the country will enter a free trade era in 2003 under the
\nASEAN Free Trade Agreement (AFTA)?<\/p>\n
The government will be able to achieve its expectation because
\nit is expanding the number of commodities subject to import
\nduties, including agricultural produce. However, such a trend is
\ncontradictory to the principles of AFTA and the World Trade
\nOrganization (WTO).<\/p>\n
Perhaps, the expansion on imposition of duties does not
\nviolate the AFTA and WTO principles if the rates are still within
\nthe allowable range or the affected commodities are excluded from
\nagreements; but the government's inconsistency in trade
\nliberalization should become our concern because it is a setback
\nand may affect domestic economic activities.<\/p>\n
Will the government's plan to raise revenue from property
\ntaxes increase burdens on taxpayers?<\/p>\n
It won't if the government pursues its target merely by
\nintensifying the tax collection. Many have evaded the payment of
\ntaxes on land and buildings. The target will burden taxpayers if
\nthe government raises the tax rates.<\/p>",
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