Tax office regulations, expedient cop-outs?

Tax office regulations, expedient cop-outs?
or
Taxation or extortion, what is the government doing to us?
or
Govt could increase revenue 40 times if diligent

Berni K. Moestafa
The Jakarta Post
Jakarta

The public hailed last year's amendment to the 1983 tax laws,
but frowned when they saw the slew of tax regulations issued this
year to implement the new laws.

The updated tax laws were praised as owning a greater sense of
justice while still aiming at improving tax revenue collection.

They also paved the way for the government to overhaul its tax
regulations in support of the new laws.

But that is when public support fell and turned to criticism.

The business community and the public at large were stunned by
a wave of new tax policies, some of which were said to be simply
erratic.

The first wave came in December of last year. They regulate
income taxes on interests from bank time deposits, and value
added taxes (VAT) on agriculture and animal husbandry products.

Under the new ruling, the government raised the income tax on
interest from bank time deposits to 20 percent from 15 percent.

It also slapped a 10 percent VAT on vegetables and meats that
were sold at supermarkets.

This drew criticism from bankers as well as producers of
vegetables and animal breeders/meat producers.

The Association of Private National Banks (Perbanas) warned
that the new tax policy would scare off bank customers, and might
trigger increased capital flight.

In response, the government eased its stance and even exempted
income tax on interest gained from bank savings and time deposits
of up to Rp 7.5 million (about US$748).

No less than the Minister of Agriculture, Bungaran Saragih
rejected the VAT for the agriculture industry.

He said the policy threatened farmers who have specialized in
supplying supermarkets with their products.

President Abdurrahman Wahid, while in office, decided to scrap
the policy.

In January 2001, the government issued 41 decrees, which,
among other things, tacked on a luxury sales tax for automobiles
by up to 75 percent.

Here, car manufacturers argued that higher taxes would hurt
sales, and backfire on the government by generating less tax
revenue.

However, this time the government stood firm on its policy.

The same as it had on another ruling, where income earned from
trading on the bond market was taxed in two ways: one on interest
income and another one on capital gains which already includes
interest income.

The country's only bond market, the Surabaya Stock Exchange
(SSX) said the policy smacked of double taxation and had prompted
bond traders to desert the market.

Apparently not clear about its own policies, the government
formed, in February 2001, a team with the SSX to review it. But
policy remains in effect today despite the review team and the
new government.

All this brings about the impression that the government
deliberately issues dozens of tax regulations knowing full well
that only a few of those will need to be revoked due to strong
protests, and thereby "sneaking in all the others".

The sudden flow of new tax regulations, however, should be
seen in light of the recently amended tax laws.

A surge in tax regulations have followed previous amendments
of tax laws in 1983 and 1995, according to one tax expert.

And last year's amendments focuses on several targets.

Among them is to improve the tax administration, increase tax
compliance, make the tax burden more equitable and to support the
decentralization of fiscal authority.

Consequently, this calls for the replacement of outdated tax
policies and the imposition of new ones.

On a different front, the 2001 state budget requires the
government to significantly increase its tax revenue targets.

That alone would justify the government tightening its tax
policies.

But last July, amid fears that the state budget deficit could
swell beyond its target, the government again hiked its tax
targets.

With this, the Finance Ministry must collect a higher tax
receipt of Rp 94 trillion up from Rp 85.2 trillion last year.

Given that tax officials must raise Rp 16.6 trillion more than
they did last year, the new tax policies come in handy.

That the policies however fail to garner public support,
unlike the laws that they were intended to support, is another
problem.

Firstly, the common thread that ran through almost every
protest against the new tax policies, was lack of publicity.

Often businesses and individuals complained that they had not
been informed of a new tax policy until it was already out.

Secondly, seeking the easiest way to hike tax revenue can
often be the surest way to draw the ire of the business
community.

The government seems to have targeted taxpayers where it
thinks it can easily collect money, an expedient cop-out which
often disregards the circumstances.

Using supermarkets or banks as tax collection points, the
government attempts to hit as many people as possible with the
least administrative cost.

But targeting consumers pressurizes sales and hurts the very
sectors that are still reeling from a four-year long economic
disaster.

Another example is VAT. According to the Director General of
Taxation Hadi Purnomo, VAT is the easiest way to increase tax
revenue within a very short time.

He did not say that VAT applies to all taxpayers irrespective
of their income levels, however.

Imposing a VAT on products purchased by consumers of different
income levels, would come at the expense of lower income groups.

Ultimately, the ease with which the government is able to hike
tax rates only blurs the line between taxation and extortion.

Bearing in mind that public services are some of the most
atrocious of any country in the world, there is a potential
danger of a major public backlash if it continues taxing with
such inconsiderate expediency.

Public awareness on the duty to pay taxes is likely to stay
low, while in raising it the government would have gained access
to its actual tax revenue potential.

Broadening the tax base, by way of making more people pay
taxes as they should, also offers the least public resistance.

According to the government, a shockingly low one million of
the country's 220 million people even own a personal tax
identification number.

And of these, only half actually file their annual income tax
returns.

Tax officials estimated the potential number of eligible tax
payers exceeded 20 million people.

Roughly speaking, income tax revenue could be increased by 40
times.

Economists have long urged the government to focus its effort
on finding new taxpayers rather than imposing new burdens on the
minuscule amount of people who are already paying.

Yet getting people to pay their taxes will likely take up more
time and energy than anyone here in the government cares to
devote to such a task.

The government needs every bit of revenue to secure its
fragile state budget and keep the country's economy afloat.

A quick, easy solution to boost tax revenues by merely
increasing the burden on the honest taxpayers could be very
tempting, especially with such an immediate need for cash as the
nation now faces.

But, like most get-rich-quick-scams they often fail in the
long run and hurt the people who they are most trying to help.