'State budget leakages reduce tax compliance'

'State budget leakages reduce tax compliance'

JAKARTA (JP): Continuous leakages in government spending and
poor public services make people reluctant to pay tax, the Center
for Fiscal and Monetary Studies says.

The center said in a statement on the draft 1997/1998 state
budget that people were getting more critical of the use of funds
raised through taxes and other levies.

"Without extra efforts to reduce leakages (inefficiency and
malfeasance), taxpayers may become discouraged from fully paying
their taxes," the center noted on Thursday.

Moreover, the public might not support taxation if they
retained the perception that paying taxes only made bureaucrats
richer.

Economist Sumitro Djojohadikusumo has said that 30 percent of
the government's annual spending was wasted because of leakages.

The center said that as people paid more tax they would become
more conscious of their rights and demand better government
services.

"People have often complained about poor public services,
especially those related to licensing. Therefore, it is
imperative for the government to improve its services because it
will influence the level of people's tax compliance," the
center's chairman, Soemarso, added.

The government expects that receipts from taxes and levies
will increase 12.6 percent to Rp 88.06 trillion (US$37 billion)
for the 1997/1998 fiscal year, up from 78.2 trillion this fiscal
year.

Domestic revenue from income tax is set to rise 22.8 percent
to Rp 29.1 trillion next fiscal year, from Rp 23.7 trillion this
fiscal year which ends in March.

The government's assumptions for the robust increase in income
tax revenue include a larger amount of withholding income taxes,
a broader tax base, higher incomes, intensified tax collection,
increased tax counseling, better tax services and greater tax
compliance.

Revenue from value added taxes are projected to increase 12.9
percent to Rp 24.6 trillion next fiscal year from Rp 21.79
trillion this year.

The government's assumes value added tax receipts will rise
because of more corporate tax payers, intensified tax collection
and better coordination with related institutions.

The center considers that the country's tax ratio to non-oil
gross domestic product of 11 percent is too low -- the lowest
among members of the Association of Southeast Asian Nations.

The center stated that Indonesia could increase its tax ratio
if the government included legal levies imposed by departments
and local administrations as taxes.

Most non-tax revenue does not go directly to the government's
account at the ministry of finance, but to the departments or
institutions which impose the levies.

The center suggested the government and the House of
Representatives work harder to complete the bill on non-tax
revenue, which is expected to send legal levies directly into the
government's coffer.

The government must work harder to abolish illegal levies
which burden the country's economy, the center said.

"We are concerned by the increasing number of levies,
especially illegal ones, which have proven to burden society,
especially the business sector," the center said.

It said the deteriorating mentality of those in the
bureaucracy and weakening law enforcement were responsible for
the emergence of illegal levies.

"Several parties have indicated that the main culprit behind
illegal levies is the low pay of civil servants," the center
said.

It noted that the government could not afford the four million
civil servants on its payroll.

The government expects to spend Rp 21.19 trillion paying the
four million civil servants and the armed forces personnel in the
next fiscal year, up from Rp 18.28 trillion this year.

The center suggested the government gradually cut the number
of civil servants to create "a reliable bureaucratic system" and
pay better salaries. (rid)