Tax laws still complicated, have gray areas: Analysts

Tax laws still complicated, have gray areas: Analysts

Urip Hudiono, The Jakarta Post, Jakarta

Indonesia will miss the opportunity to attain a tax-based economy
if it fails to address the main problems of complicated tax laws
and tax officials with questionable integrity, analysts say.

"The devil is in the details, in the fine print of the tax
laws," economist Faisal Basri of the University of Indonesia said
at a seminar on tax reform on Tuesday.

"Gray areas of tax law articles, which are still open to
interpretation, should be reduced. Any planned tax reform should
not be patchwork but total reform, including of the tax office,"
he added.

Rosediana Suharto, a business association representative, gave
an example of one gray area, in which agricultural products
exempt from value-added tax (VAT) were vaguely defined as "crops
which are directly harvested", leading to different
interpretation by tax officials.

"If latex is directly collected but immediately treated for
better storage, is it then subject to tax?" she asked.

It was only after the Ministry of Agriculture submitted a more
specific definition for the draft tax law amendments that the
matter was made clear.

The government submitted to the House of Representatives the
revision to the laws on general taxation arrangements and
procedures, income tax and VAT for deliberation, which will be
the third major tax reform since 1983, if approved.

The government expects to rake in Rp 416.3 trillion (US$41.63
billion) in tax revenue next year, up from Rp 351.9 trillion this
year. It also aims to raise the tax base to 19 percent by 2009,
from some 13 percent at present.

With only some three million taxpayers, Faisal acknowledged
the need for a larger tax base for a better economy, but
understood the public's reluctance to comply.

"Taxpayers' expectations are actually simple: that tax
regulations be clear and tax rates competitive. If these are
fulfilled, then the tax base, tax revenue and the business
climate will improve, attracting more investment," he said.

A recent World Bank survey shows that businesses in Indonesia
spend more than twice as much time on tax matters and make twice
the number of tax payments than the Asian average. They also pay
an effective rate of 38.8 percent as compared to the region's
31.2 percent average.

"No wonder many don't want to get more of a headache by
dealing with taxes. There is also a lack of incentive-based
persuasion in tax reform, and instead more draconian power is
being given to the tax office," Faisal said.

Concerning calls to include an amnesty for tax evaders to
encourage them to register as taxpayers, chairman of the House's
finance commission and deliberation team, Paskah Suzetta, said
the House would give the government until the end of November to
submit such addenda.

"If by then the government has not submitted any, the House
can use its initiative," he said.

Faisal, however, warned the lawmakers to avoid creating a
possibility for the tax amnesty to be taken advantage of, which
would jeopardize the whole essence of tax reform. "It should
firmly remain what it is called: a tax amnesty, not a corruption
amnesty."