Laying groundwork for change in the tax office

Laying groundwork for change in the tax office

Rendi A. Witular, The Jakarta Post/Jakarta

Despite all the efforts to promote good governance at tax offices
last year, the Directorate General of Taxation has failed to
address taxpayers' greatest concerns: the uncertainty over tax
law enforcement, and corruption within the office.

Sofjan Wanandi, businessman and chairman of the Indonesian
Economic Recovery Committee (KPEN), said there had been no
satisfying progress in the country's overall tax administration
in 2004 as far as corruption was concerned.

"Nothing changed; the tax office remains a haven for
corruptors and leakage of potential tax revenue for the state is
huge and unacceptable" said Sofjan, who is also chairman of the
Indonesian Employers Association (Apindo).

Corrupt taxation administration has led to poor tax law
enforcement and low tax collection, he said.

Despite these serious concerns, there were nonetheless a
number of efforts made by the government and the tax office that
may lay the foundation for better tax administration in the
future.

Among the efforts was the initiative taken by the
administration of former president Megawati Soekarnoputri to
revise the tax laws.

The revision of the tax laws, which was part of the
government's key economic reform measures after "graduating"
from the International Monetary Fund's bailout program, is aimed
at boosting tax revenue and compliance.

The intentions are good and welcome by many parties, but there
are several articles in the draft revision that have sparked
outcry from the local business community and from foreign
investors.

Among the controversial articles is a plan to give greater
power to the tax office to detain taxpayers without trial for any
violation of tax law, and to impose tough sanctions on taxpayers
for a range of small violations.

The business community are concerned that such regulations
could further encourage extortion and collusion, and be used by
the numerous unscrupulous tax officials as another weapon to
fleece taxpayers.

In response to protests, Megawati postponed the revision of
the tax laws. The new government under President Susilo Bambang
Yudhoyono, who was sworn in last Oct. 20, has decided to resume
the revision and to accommodate the concerns of the business
community.

Learning from past mistakes, the current government has
pledged to revise the laws with the primary aim of not only
boosting tax revenues, but also in combating corruption at tax
offices. However, until now the new revision has not been
finalized.

Another important event this year was the filing of a petition
by a businessman challenging the tax office in the Constitutional
Court.

This indicates that the business community, who are generally
fearful of arguing with tax officials and would rather compromise
in case of disputes in order to protect their businesses, are now
more aware of their rights, and have more courage in facing off
with tax officials -- something that corrupt tax officials should
now take seriously.

The Constitutional Court is currently examining a petition
filed by businessman B.Q. Vega to review the legality of the tax
tribunal law, which it said had created unfairness and a lack of
legal certainty for the business community.

Vega said he decided to go to court after falling victim to
what he described as "unscrupulous behavior" by tax officials,
who used the tax tribunal as a tool for extorting taxpayers.

The tribunal will be abolished if the Constitutional Court
decides to overturn the law. This, analysts say, will pave way
for the establishment of an independent tribunal under the
auspices of the Supreme Court.

At present, the tax tribunal is considered by many taxpayers
to be an unfair institution because it often takes side with the
tax office. This is probably understandable given that it is
under the auspices of the Ministry of Finance, and all its judges
are selected and paid by the ministry.

Another effort to reform the nation's tax system is a plan by
several high-ranking tax officials to turn the tax office into an
independent agency, separate from the Ministry of Finance. This,
they said, will allow tax officials to focus on collecting taxes
and enforcing tax laws.

The plan comes amid concerns that the directorate could not
concentrate on its tasks because it has also has to carry out
other jobs unrelated to tax collection and tax law enforcement,
such as making tax regulations. This, they said, should be
performed by other agencies.

The plan, however, was rejected by former Minister of Finance
Boediono because of fears that the government could not
effectively control the tax office, and that it might affect tax
collection at the time the government really needed additional
revenue from taxation.

Director General of Taxation Hadi Purnomo told The Jakarta
Post recently that he could not accept any opinion charging that
there had been no reform at his office, citing several
"successes" that had been made in improving tax service and
collection this year.

"It is unfair to say that there has been no improvement at
all. We have modernized our tax system by implementing an online
system and have expanded the tax administration system adopted by
the Large Tax Office (LTO) to a number of other tax offices,"
said Hadi.

The LTO, which was established in 2003, is the directorate's
pilot project for a clean, modern and professional tax collection
system.

The office is manned by well-trained, highly-paid tax
officials, each of whom focuses on certain taxpayers. Each of
taxpayer will thus have their documents taken care of by
officials specially assigned to them. The LTO is also equipped
with a complaint center.

With the LTO, the tax office aims to give better and faster
service to taxpayers as well as providing faster solutions in the
event of disputes.

The LTO has received a warm reception from large taxpayers as
it is considered effective in preventing backroom deals among
taxpayers and tax officials.

Last year, the directorate started expanding the "LTO system"
to other tax offices in Jakarta. But so far the service is only
provided to big corporations.

Hadi added that the directorate had also initiated the
establishment of a database of potential taxpayers, and the
creation of single identity number so that the tax office could
more easily track taxpayers.

"The database is expected to be used to cross-check taxpayers'
reported tax bills with data gained by the directorate from
various other sources," said Hadi, adding that the directorate
had reduced corrupt practices at tax offices by setting up online
payment and tax bill filing systems.