Jailing tax officials?

Jailing tax officials?

The recent jailing of an Indonesian businessman and an
expatriate executive without prior trial, for failing to settle
at least 50 percent of their back taxes, could serve as a
powerful warning to taxpayers to fulfill their obligations
properly.

Even though the treatment of jailed delinquent taxpayers will
not be as harsh as those accorded to ordinary prisoners, as tax
debtors are not classified as criminal convicts, robbing such
well-heeled persons of their freedom could be quite effective in
forcing them to resolve their tax liabilities.

We wonder why such draconian legal measures have not been
taken against large corporate debtors who have so far been
uncooperative in resolving their liabilities.

However, the harsh legal penalties will not be effective in
nurturing a high sense of tax compliance if corrupt tax officials
are not subject to equally strong law enforcement. After all,
corrupt and technically incompetent tax officers should also be
held responsible for the high incidence of tax evasion and
arrears.

The government, strapped for cash, should understandably hunt
down delinquent taxpayers who, according to latest estimates, owe
the state almost Rp 20 trillion (US$2.35 billion) in back taxes.

Tax legislation also provides tax officials with extrajudicial
powers to jail for up to a year without trial taxpayers who owe
the government more than Rp 100 million in tax arrears.

This vigorous tax collection campaign should be welcomed as a
fresh initiative to establish a taxpaying culture in the country,
which has been notorious for widespread tax evasion. Just look at
how limited tax collection has been in the country. For the
current fiscal year, for example, total tax revenues are
estimated at only about 13 percent of gross domestic product, as
against 25 percent to 40 percent in other ASEAN countries.

Analysts have estimated that tax collection remains very
small in proportion to potential revenue, or around 50 percent of
corporate and personal income tax and 55 percent of value-added
tax.

Tax noncompliance in Indonesia is unusually extensive due to
the limited likelihood and low costs of being caught and because
of rampant collusion with corrupt tax officers and an inadequate
number of competent tax auditors.

The draconian measure of putting delinquent taxpayers in jail
could be a great deterrent to tax evasion.

However legitimate may be the repressive measures taken
against uncooperative tax debtors, effective supervision is still
required to prevent abuse of extrajudicial powers.

The government, internationally notorious as one of the most
corrupt in the world, cannot simply ignore the public perception
that the tax service is one of the most corrupt public
institutions in the country. And yet, very few tax officials have
been taken to court.

Jailing is only one of several repressive measures the
taxation directorate is authorized to take against recalcitrant
taxpayers. Laws No. 16 and 19, and Government Regulation
No.137/2000 regarding general directives on tax administration
and tax collection, also fully empower tax officers to seize in
distress, and eventually auction, the assets of delinquent
taxpayers without the virtue of a court decision. Uncooperative
tax debtors can also be banned from traveling overseas.

We therefore fully share the great concern raised last week by
several business leaders about the possible abuse by tax
officials of the powers at their disposal.

But blatant abuse could be prevented if both taxpayers and tax
officials were equal before the law, meaning that the penalties
on tax officers who apply the tax rules wrongly should be equally
as harsh as those applied to taxpayers who violate tax
legislation.

The blunt reality now is that the legal position of taxpayers
is always much weaker than that of tax officials with regard to
law enforcement. Most charges against tax officials suspected of
corruption have ended up simply with minor corrective measures
such as moving suspected officials to other posts.

Equal treatment is one of the main issues that should be
addressed in the upcoming tax reforms currently under
preparation, which will be proposed to the House of
Representatives sometime next year.

In the meantime, the finance ministry and the House should
tightly supervise tax officials in exercising their extrajudicial
powers because tax compliance can only be nurtured and sustained
in the long term under a climate of mutual trust between
taxpayers and tax officers.

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