Delayed tax refunds
Delayed tax refunds
Minister of Finance Mar'ie Muhammad's admission of the large
amount of tax-refund arrears at the Directorate General of Tax
once again demonstrates how a well-designed incentive to promote
exports often turns out to be meaningless due to extremely
inadequate and inefficient administrative arrangements. Mar'ie
acknowledged at a House hearing last week that many exporters had
often complained about the long delays in tax refunds by the
Directorate General of Tax. Such delays obviously adversely
affect their cash flow and this is especially harmful to local
companies which have to pay high bank interest. The finance
minister did not specify the amount of tax-refund arrears
accumulating at the directorate general but he admitted it was
fairly big.
Mar'ie assured the House members he had instructed the
director general of tax to expedite the disbursement of tax
refunds to eligible exporters without slackening the supervision
to prevent abuse of tax incentives by unscrupulous
businesspeople. But there is no reason to believe that this time
the instruction will be effective. After all, businesspeople
often complain about similar bureaucratic hurdles they encounter
at other offices in getting the various incentives offered by the
government to exporters. Officials in charge of administering the
incentives often are held hostage by their inordinate worries
about possible abuse of incentives. True, not all businesspeople
are lily white and abuse is not impossible. This, however, should
not prompt officials to hold up the granting of incentives to
most exporters.
In so far as tax incentives are concerned, exporters are
entitled to refunds of the value-added tax paid for the elements
used in the production of their export goods. This incentive is
administered by the Directorate General of Tax. They are also
entitled to draw back the import duties and value-added tax paid
for imported materials from the Export Service Facilitating
Agency under the finance ministry.
We believe most exporters, especially those who rely largely
on the international market, would not risk their reputations by
attempting to abuse the tax incentives. Moreover, the officials
or agencies in charge of administering the incentives should deal
regularly with exporters and should keep their track records
(compliance history). They should not harass all exporters simply
to catch several potential crooks.
We therefore tend to agree with exporters' allegations that
the main reason for officials to subject them to arduous checks
before granting them the incentives they are entitled to is not
really to save government funds by preventing abuse, but to
extort illegal payments. This kind of malfeasance, which
businesspeople also encounter at licensing agencies, is obviously
one of the major components of what analysts call Indonesia's
high-cost economy.
In view of this bureaucratic behavior, we doubt there will be
any benefits -- in so far as export competitiveness is concerned
-- to come out of the industry and trade ministry's hard work in
selecting exporting companies that are eligible to the tax and
nontax incentives granted by the government to bolster exports.
There are two things that are likely to occur if the
administration of export incentives remains mired in malfeasance
or bureaucratic inertia. First, an increasing number of honest
exporters who are constantly under the inordinate suspicion of
officials and who have to pay officials to get things expedited
may eventually resort to infringements, thinking that they can
bribe their way out of official checks.
Exporters who do not want to take the corrupt route may simply
abandon the export market and sell locally. Or if their licenses
do not allow them to trade domestically, they may relocate their
plants to countries which offer better, more efficient and more
transparent administration of export incentives. Either way would
have a devastating impact on Indonesia's balance of payments
which already is under strong pressure from a huge, widening
current account deficit.