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.