'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)