Manipulating invoices<\/p>\n
The submission to the Attorney General's Office of dossiers on
\n51 companies in Greater Jakarta charged with tax fraud by the tax
\ndirectorate general last week, is more evidence of the extensive
\nuse of false or fabricated sales invoices in Indonesia. Tax
\nDirector General Fuad Bawazier charged the companies with
\nmanipulating invoices to get larger value added tax refunds from
\nthe government.<\/p>\n
Sales invoices are easily falsified in Indonesia by quoting a
\nsum not equal to the sale price but a fabricated number settled
\nupon by the seller and buyer.<\/p>\n
Certified public accountants cannot do anything about these
\nphony invoices, however, because the documents are legal, or at
\nleast bear formal truth. A company which uses manipulated, yet
\nlegitimate, invoices to support its financial statements can
\nstill get a clean bill of health from public accountants. This is
\nbecause auditors work according to the accounting principles of
\nthe Indonesian Accountants Association which emphasize legal
\ntruth, or the conformity of transactions and other financial
\nreports to legal documents. A full audit, although more reliable
\nbecause auditors also seek material truth, is very costly and is
\ntherefore only conducted for special purposes, such as when
\nacquiring a company.<\/p>\n
The tax officials uncovered the invoice manipulation not with
\na normal audit, but through a tax audit, essentially a full
\naudit, which looks for both formal and material truth.<\/p>\n
Since the main mechanism of the value added tax (VAT) is a
\nscheme whereby a company is allowed to credit the VAT it pays on
\ninputs against the VAT it collects from the sales of its products
\n(output), transaction invoices are the main tool for tax fraud.
\nThere are various ways in which a company can commit tax fraud.
\nIt may submit tax invoices from bogus companies to get larger
\nrefunds or submit false export documents to obtain tax refunds
\nbecause exports are exempt from VAT.<\/p>\n
The rampant manipulation of invoices is not only devastating
\nbecause of the loss of government tax revenues, but also because
\nof the cost to the economy as a whole. In fact, according to
\nGovernment Audit Agency reports, a main source of malfeasance
\nuncovered by its auditors was government agencies marking up the
\ncost of goods and services they procure.<\/p>\n
The chief of the Government Audit Agency, Soedarjono,
\nacknowledged in the middle of last month that proving price mark-
\nups was difficult due to the virtual absence of information on
\nmarket prices. He said the price information system in the
\ncountry isn't transparent yet. In Singapore, by contrast, getting
\naccess to comprehensive information on market prices can cost as
\nlittle as US$ 10.<\/p>\n
Martiono Hadianto, the director general at the finance
\nministry in charge of supervising state companies, also recently
\nadmitted in Medan, North Sumatra, that many state plantation
\nfirms had been dictated to by outside suppliers. His remarks
\nimplied that suppliers of goods and services deliberately
\ninflated their prices in collusion with the directors of state
\nplantation companies.<\/p>\n
Many analysts contend that the tax directorate general's
\ndiscoveries are only the tip of the iceberg of invoice
\nmanipulation in the country. Our tax administration system is
\nonly able to detect the most obvious or flagrant manipulations.
\nMoreover, the need for tax auditors far outstrips the supply.
\nHence, companies and businesspeople can easily be asked to
\ncollude in invoice manipulation because the risk of being caught
\nis very slim.<\/p>\n
However, tax revenue losses are not the only damage incurred
\nby invoice manipulation. Price mark-ups have also been identified
\nas a main reason behind bad loans and a major cause of the high-
\ncost economy. It is therefore imperative that the government make
\nthe bidding process for the procurement of goods and services
\nmore transparent. The tax directorate general also needs to
\ndevelop a intelligence network of market information to
\ncrosscheck the validity of sales invoices.<\/p>",
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"sponsor": "Okusi Associates",
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