Moral hazards of a tax amnesty<\/p>\n
We are quite apprehensive about the real objective behind the
\ngovernment's plan to grant a tax amnesty. While no further
\ndevelopments have been heard regarding the long-awaited tax
\nadministrative reform, the new government has revived the idea of
\na tax amnesty, which had been banished by the previous
\nadministration as economically unfeasible and a gross violation
\nof the people's sense of fairness.<\/p>\n
Few technical details were immediately available about the
\nplanned amnesty, which has yet to be formulated into a bill for
\napproval by the House of Representatives. Nevertheless, the mere
\nplan to include a tax amnesty in the priority agenda of the new
\ngovernment has raised eyebrows, especially because Aburizal
\nBakrie, the chief economics minister in President Susilo Bambang
\nYudhoyono's Cabinet, is a former chairman of the Indonesian
\nChamber of Commerce and Industry (Kadin).<\/p>\n
Kadin has been promoting the idea of a tax amnesty since last
\nyear as part of its comprehensive tax reform proposal to the
\ngovernment. The group has argued that such a facility is
\nnecessary to broaden the tax base and lure back billions of
\ndollars parked overseas by Indonesian conglomerates during the
\nheight of the economic crisis in 1998.<\/p>\n
True, the cash-strapped government is desperate for new
\nprivate investment to reinvigorate the economy and to broaden the
\ntax base and increase tax revenue. The number of registered
\npersonal income taxpayers is still less than 1 percent of the
\ntotal population.<\/p>\n
Moreover, tax evasion is pervasive, as can be seen from the
\nlow tax ratio (tax receipts against gross domestic product) of
\nless than 13 percent. And similar programs in many countries have
\nshown that a well-administered tax amnesty can bring millions of
\nindividuals and businesses onto the tax rolls for the first time.<\/p>\n
However, the situation in Indonesia is not conducive for the
\nimplementation of such a facility. Given the utterly corrupt and
\ninefficient tax administration, granting an indiscriminate tax
\namnesty now would mostly benefit the big conglomerates whose
\nbankrupt banks and companies previously cost taxpayers about the
\nequivalent of US$75 billion.<\/p>\n
If a tax amnesty is the only incentive that will encourage
\nthese conglomerates to bring back their funds from overseas, it
\nis not worth the government's time to woo back such skittish
\ninvestors. They already demonstrated their lack of faith in the
\ncountry by transferring their money overseas.<\/p>\n
It would be a grave insult to the public's sense of justice if
\nthese same debtor conglomerates, which have been able to
\nreacquire their assets at less than 30 percent of their original
\nvalue, were allowed to enjoy such a generous tax relief.<\/p>\n
There is nonetheless a real need for a tax amnesty, but on a
\nstrictly selective basis, granted mainly to small and medium-
\nsized businesses to encourage them to go legitimate, and to net
\ntaxpayers who in the past chose to evade their taxes because the
\ncorrupt tax administration made this much simpler and cheaper
\nthan registering as taxpayers.<\/p>\n
A tax amnesty is supposed to encourage people and firms to
\nregister as taxpayers without fear of prosecution for past tax
\ndebts.<\/p>\n
But granting a tax amnesty without first establishing a strong
\ntax administration would only cause moral hazards as people,
\nexpecting another amnesty in the future, would lower their tax
\ncompliance and honest taxpayers would be discouraged from
\ncontinuing their voluntary compliance.<\/p>\n
An indiscriminate tax amnesty would also hurt the people's
\nsense of justice, especially if the facility was put in place
\nearly next year at the same time the government was raising fuel
\nprices.<\/p>\n
A strong and efficient tax administration is a prerequisite
\nfor making a tax amnesty effective in achieving its main
\nobjectives, because the tax amnesty period should be followed
\nimmediately by strong low enforcement against tax evaders and
\ncheaters.<\/p>\n
An effective tax administration will be able to send the
\nmessage that the tax amnesty is a one-time deal, a one-time
\nopportunity to make up for past mistakes, and that in the future
\nall tax evaders will be punished.<\/p>\n
The government should therefore give top priority to the
\ncompletion of bills on income tax, value added tax and the
\ngeneral rules and procedures of taxation before granting any tax
\namnesty.<\/p>",
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"sponsor": "Okusi Associates",
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