Government to go after taxpayers to boost income

The Jakarta Post, Jakarta

President Susilo Bambang Yudhoyono told the tax office on Wednesday to boost tax revenue up to 19 percent of the nation's gross domestic product (GDP) by 2009, from 13.8 percent at the moment.

However, Ministry of Finance Director General for Taxation Hadi Purnomo, speaking to reporters following a visit by the President to the tax office's headquarters, said Susilo had stated that such a move should not come at the expense of economic growth.

"That means we should focus more on enlarging the tax base, rather than on the tariffs.

"So, in 2009, it should become 19 percent -- not by raising tax rates, but by widening the tax base," Hadi said after the visit, in which Coordinating Minister for the Economy Aburizal Bakrie and Minister of Finance Yusuf Anwar accompanied the President.

Tax revenue, targeted this year to reach Rp 238 trillion (some US$26 billion), accounts for about 80 percent of the total state income. The tax revenue target in the 2005 state budget stands at Rp 297.51 trillion. Tax has now become a crucial source of revenue for the state budget in a bid to end dependency on foreign loans and to create a more sustainable fiscal condition.

Despite the fact that there is only about 2.5 million taxpayers out of the country's 220 million population, Hadi is optimistic that the office can still meet the high target, which should require an increase of about a 1 percentage point in tax ratio per year.

Asked about his plans to increase the number of taxpayers, Hadi replied that, aside from developing the so-named single identification number for citizens, his office is also pursuing greater access to information of financial transactions in banks and other financial institutions to detect potential sources of taxpayers.

But, the later is very unlikely to be adopted in the near future amid strong objections, particularly from bankers, citing the importance of the banking confidentiality to maintain confidence in the banking sector.

Susilo's remarks that any move to increase tax revenue should not put at risk the nation's industry and economic growth corresponds with the banker's objections.

Analyst Aviliani of the Institute for Development of Economics and Finance (Indef) cited two things, in addition to increasing the number of taxpayers, that could boost tax revenue.

First, improving transparency and efficiency of the tax office, she said, which would in turn cut bureaucratic red-tape.

"This would be beneficial in limiting chances for potential losses," she said.

Citing various studies, the tax office, despite its contribution to state coffers, has also been used as a cash cow by unscrupulous officials seeking personal gain.

Second, Aviliani said, by introducing more tax incentives for industries, especially export-oriented ones.

While in the short term, the move would hurt tax revenue, but it would be beneficial in the long run, as companies should benefit from lower production costs and in the end boost their revenue.

Larger revenue means another potential source of tax revenue, she added.