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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