Sun, 11 Apr 2010

From: Reuters

By Sara Webb and Olivia Rondonuwu
* Massive syndicate is defrauding tax dept - task force

* Tax office must introduce effective oversight systems

* Illegal logging business in Riau under scrutiny next

JAKARTA, April 9 (Reuters) - A scandal in Indonesia's tax department has exposed how corrupt tax and law enforcement officials set up a "massive" syndicate to defraud the government and embezzle funds, a legal reform official said on Friday.

Mas Achmad Santosa, a member of a task force set up by President Susilo Bambang Yudhoyono to oversee legal reform, said the team would propose ways to improve oversight of the tax office and tax court to avoid such losses to the state in future.

President Yudhoyono, re-elected last year, has promised to reform the legal system and civil service to curb graft -- moves that would increase Indonesia's appeal to foreign investors and improve its chance of getting an investment grade credit rating.

Finance Minister Sri Mulyani Indrawati has clamped down on tax evaders and made sweeping changes in the tax and customs departments to improve revenue collection, measures aimed at reducing Indonesia's dependence on the capital markets when it comes to funding the budget deficit.

While those reforms have made it harder for officials to take bribes in exchange for lower tax assessments, corruption remains rife, Santosa said in an interview with Reuters.

"Since bureaucratic reform took place in the ministry of finance, it's difficult for them to play around, to steal money, to get bribes, etc. But this crime is very organised, it's a system... it's worse than I thought," he told Reuters.

"It relates not only to tax officers, but also police, prosecutors, possibly judges, advocates and notaries," he said, adding that the recent tax scandal provided "an entry point for us to open up the modus operandi of the tax mafia, including in the tax court. It's important."

The tax scandal involved Gayus Tambunan, a low-paid tax officer who had more than $3 million in his bank account and who is suspected of taking bribes in exchange for handing out lower tax assessments.

Tambunan has now turned whistleblower and has given authorities a list of his accomplices in the tax office, police, and court, as well as firms whose tax assessments he handled.

Santosa said he wanted the tax assessments handled by Tambunan to be investigated by police.

Several officials have been suspended or questioned over the allegations, while the finance minister has promised further reforms of the tax department. [ID:nJAK123290]

The tax case has led to a public outcry, with thousands of irate Indonesians signing up for a Facebook campaign calling for a boycott of tax payments, and has provided fodder for Indrawati's enemies.

The former IMF director has upset many members of the political and business elite with her macroeconomic reforms and tough stance on corruption, and recently survived a highly politicised investigation into her decision to rescue a small bank at the height of the 2008 financial crisis.[ID:nJAK397055]

The tax scandal has also damaged morale within the tax office and could potentially hurt the government's efforts to improve tax collection, particularly in a country where only 16 million people in a population of 240 million are registered taxpayers.

Tax evasion is something of a national sport in Indonesia, where few people see any tangible benefits from paying taxes in terms of schooling, healthcare or infrastructure. [ID:nJAK80953]

"I want the tax office to improve very fast because it's the backbone of national income. So when we shake them for a long time I think the officers will be demoralised, because it's difficult for them to concentrate on the job of collecting tax," Santosa said.

He said that strict hiring rules, which make it almost impossible to recruit outside the civil service for the top posts, are an impediment to reform of the bureaucracy.

Santosa, an academic who specialised in environmental law, said the legal reform task force plans to investigate illegal logging in Riau province next in order to reduce environmental destruction and losses to the state.