Providing evidence of corruption in economic perspective<\/p>\n
Jhon Tafbu Ritonga, Medan<\/p>\n
Two prominent economists who are well-known for their critical
\nanalysis of economic affairs and corruption were legally warned
\nby Taxation Directorate of the State Department of Finance. In
\nthe warnings, the directorate challenged the two economists to
\nprove the corruption at the tax office, which they had alleged.<\/p>\n
The first case was related to Kwik Kian Gie, who wrote in a
\nnationally circulated newspaper, that a total of Rp 180 trillion
\n(US$19 billion) in value-added tax had been lost. Similarly,
\nFaisal H. Basri said Rp 40 trillion ($4.3 billion) in tax
\nrevenues had been lost.<\/p>\n
The legal threats against Kwik and Faisal could influence the
\nsuccess of the eradication of corruption in this country, and may
\neven threaten democracy and academic freedom.<\/p>\n
It was unfortunate that Kwik had succumbed to the tax
\ndirectorate's demand and apologized to them via a very large
\nadvertisement in Kompas newspaper earlier this month.<\/p>\n
Based on the size of the advertisement, Kwik likely paid the
\nequivalent of thousands of dollars for that advertisement, much
\ngreater than the small fee Kwik probably received for his article
\nin the same newspaper.<\/p>\n
Kwik said he placed the advertisement\/apology only because
\nthat was much cheaper and simpler than a litigation process that
\ncould cost him much more in terms of money and time.<\/p>\n
In contrast to Kwik, Faisal has stood firm and refuses to
\napologize. He has now challenged the tax office to a public
\ndebate, demanding that the tax office prove that it was free of
\ncorruption. He also asserted that the burden of proof should fall
\non tax officials by proving that their wealth had been acquired
\nthrough legal means.<\/p>\n
If the cases were brought to court, Kwik and Faisal would
\nsurely lose because academic evidence cannot be accepted as legal
\nevidence.<\/p>\n
As an experienced economist and former chief of
\nthe Department of Economics and Development Study of the
\nUniversity of Indonesia, Faisal must have been quite sure about
\nhis method and analysis that brought him to a conclusion that Rp
\n40 trillion (US$4.3 billion) in potential tax receipts had been
\nembezzled.<\/p>\n
Kwik's decision to apologize is a small portrait of how
\ndifficult it is to eradicate corruption in this country. A well-
\nknown, honest, clever and intelligent man, Kwik is also a key
\nfigure in the second largest political party (PDI-P) as well as a
\nformer minister. That he did not have the courage to stand up
\nagainst the tax directorate is telling indeed and a real setback
\nfor the anti-graft camp.<\/p>\n
However, Kwik's decision can also be understood as a fairly
\nclever move economically. As a former minister, Kwik would surely
\nunderstand the process and system of law in this country.
\nEconomically, the price he paid for publishing the request for
\nforgiveness was much smaller than the price he would have had to
\npay for lawyers if the case went to trial.<\/p>\n
Meanwhile, Faisal feels sure that his method and analysis can
\nacademically, though not legally, prove that corruption has taken
\nplace. Legal evidence and the truth of science might be two
\ndifferent things.<\/p>\n
An economist such as Faisal must believe in his model and
\nanalysis, while Kwik seems to be acting more like a politician.
\nKwik and Faisal remind me of Socrates (329BC-399BC) who had to
\nface the death penalty for his scientific opinion, or Aristotle
\n(384 BC-322 BC) who died in exile, and Galileo (1564-1642) who
\nwas forced to withdraw his theory that the earth revolves round
\nthe sun.<\/p>\n
During the New Order era, the guru of Indonesian economists
\nSumitro Djojohadikusumo also criticized the government for
\nwasting 30 percent of its development budget.<\/p>\n
Speaking at a forum of the Indonesian Economists Association
\nSumitro said the state budget wasted 30 percent of taxpayers'
\nmoney through inefficiency and corruption. Sumitro did not have
\nconcrete administrative and legal evidence.<\/p>\n
The then Cabinet ministers under the Soeharto administration,
\nwho were attacked by Sumitro's observation, did not serve a legal
\nwarning on Sumitro, as the tax officials did against Kwik and
\nFaisal.<\/p>\n
However, as an economist, Sumitro then wrote his method of
\nanalysis explaining the 30 percent waste and loss. His analysis
\nused the ICOR method (Incremental Capital Output Ratio), a
\nparameter that shows how much investment needs to be made to
\ngenerate one unit of output.<\/p>\n
Sumitro described then that Indonesia had an ICOR 5, while its
\nneighboring countries had only 3.5. Using the ICOR method,
\nSumitro concluded that Indonesia needed to invest much more than
\nits neighboring countries to generate one unit of output, meaning
\nthat there had been losses amounting to 1.5 percentage points, or
\n30 percent of 5.<\/p>\n
This is the way economic science provides evidence of losses,
\nboth because of bad management and corruption.<\/p>\n
In the perspective of economics, economic indicators, or
\nparameters, are information in analyzing whether the economy runs
\nefficiently or inefficiently. If it runs inefficiently, it means
\nthat there is a waste and loss because of bad management or
\ncorruption, just like Kwik's analysis.<\/p>\n
If a taxpayer, through unscrupulous negotiations with tax
\nofficials, is able to pay only half his or her actual tax
\nobligation, then about 50 percent of potential tax receipts are
\nlost.<\/p>\n
Consequently, if the total tax revenue is Rp 180 trillion ($19
\nbillion), it means the total potential waste and loss will be
\nanother Rp 180 trillion (US $19 billion). If the Taxation
\nDirectorate challenges him to provide legal evidence or
\nsupporting documents, which legally and administratively validate
\nhis conclusions in court, Kwik must have been unable to do so
\nbecause what he presented is an analysis of economic science.<\/p>\n
Another example is Ari Kuncoro's research findings carried by
\nthe Bulletin of Indonesian Economic Studies (BIES), Volume 40
\nNo. 3, December 2004). The research shows that nearly 74 percent
\nof 1,808 respondents confessed that they felt compelled to bribe
\ntax officials and the bribe money represented an average of 10.3
\npercent of their production costs.<\/p>\n
If the government challenges Ari to provide evidence by
\nmentioning who bribes whom and who is being bribed, how much
\nmoney is involved on each transaction, when and where, Ari must
\nbe unable to do so. However, the conclusion that corruption does
\nexist is scientifically clear and convincing. The logic of
\neconomic science proves that.<\/p>\n
At the end of the day, the tax directorate's legal warnings
\nagainst Kwik and Faisal are a threat to democracy and the freedom
\nof scientists.<\/p>\n
The experiences of Kwik and Faisal shows that corruption tends
\nto be more and more difficult to eradicate in this country.<\/p>\n
Actually, in the perspective of economic science, providing
\nthe evidence of corruption does not need the legal evidence such
\nas who and where, or even a receipt. Government, in this case the
\nTaxation Department, should not be making efforts to restrict the
\nfreedom of scientists by hiding behind the law.<\/p>\n
The scientific world has its approaches, tools and methods to
\nanalyze and provide evidence of corruption and the management of
\nthe country's economy. But with the tax office's legal threats,
\neconomists will now be wary of legal action, which will obviously
\nrestrict most of them.<\/p>\n
The writer is economic observer life in Medan. He is also a
\nlecturer in the Economics Department at North Sumatra University.
\nHe can be reached at jtritonga@yahoo.com.<\/p>",
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