Govt fails to finish drafting tax laws

Rendi A. Witular, The Jakarta Post, Jakarta

The directorate general of taxation has not been able to submit drafts on the amendment of three tax laws to the House of Representatives as scheduled in February, according to a senior official.

Secretary of the tax reform team Robert Pakhpahan told The Jakarta Post on Monday the drafts had yet to be approved by the state secretary, a key requirement before being discussed by other related ministries.

He said that after completing the discussion with the ministries, the drafts would have to be approved first by the President before they were submitted to the House of Representatives for deliberation.

"We are still awaiting approval from the state secretary. We have no idea when the drafts can be completed," said Robert, who is also an acting director for value added tax and luxury tax at the tax directorate.

The directorate general of taxation has drafted amendments to three tax laws: Law No. 16/2000 on general taxation arrangements and procedures, Law No. 17/2000 on income tax and Law No. 18/2000 on value-added tax on goods and services and luxury sales tax.

The directorate initially hoped to submit the drafts to the House in January, but it was delayed till February. The time schedule is contained in a government White Paper that basically highlights key reform programs to be implemented by the government after graduating from the International Monetary Fund bailout program earlier this year.

Analysts said that the failure to complete the drafts on schedule had shown that the government was not disciplined enough to implement action plans included in the White Paper, which become a benchmark to measure the government's seriousness in improving the country's economy.

However, according to sources at the tax directorate and the Ministry of Finance, the government had intentionally delayed completion of the drafts because of a recent proposal by the tax directorate to be independent from the Ministry of Finance.

The corruption-infested tax directorate is currently under the auspices of the Ministry of Finance.

"The state secretary had to postpone issuing the approval, pending the President's decision on the separation plan," the sources said.

As previously reported, officials at the tax directorate planned to adopt a similar system used by the U.S. Internal Revenue Service (IRS). The IRS, a branch of the U.S. Department of the Treasury, is tasked only with the collection of taxes and enforcement of tax laws.

But the IRS commissioner and chief counsel are selected by the president and confirmed by the senate, meaning that they are directly responsible to the president and not to officials at the Department of the Treasury.

Tax officials recently lobbied President Megawati Soekarnoputri on the plan.

Director general of taxation Hadi Purnomo recently denied the existence of such a plan, while Minister of Finance Boediono only grinned when asked to confirm it.