Tax reform to expand withholding tax system

JAKARTA (JP): The planned reform in taxation will expand allowable withholding and offer more transparency and fairness, Minister of Finance Mar'ie Muhammad said here yesterday.

"The planned tax reform is expected to further reflect transparency and to further the diversify tax base," the minister said at the opening of a seminar on tax reform.

Speakers at the seminar, held jointly by the IBII Business School, the Center for Fiscal and Monetary Studies (CFMS) and the Bina Pembangunan Foundation, included Kwik Kian Gie, the vice chairman of the Indonesian Democratic Party (PDI), Irzan Tanjung, a lecturer of the University of Indonesia, Hussein Kartasasmita, a former senior tax official, and Soemarso, the chairman of CFMS.

The finance minister said the withholding tax system will remain to be in line with the self-assessment tax policy that has, thus far, been applied by the government.

"The self-assessment system does not indicate a lack of government supervision over tax collection but reflects the freedom of taxpayers to carry out their own obligations," he argued.

"You pay as you earn. It is our principle for collecting tax from the public," Mar'ie said.

Director General of Tax Fuad Bawazier told the seminar that the existing law, introduced in 1984, is no longer relevant to the current business situations.

"Within the last 10 years many new businesses have emerged, especially those related to stock activity, money market and commercial paper trading," he said.

"And as you can see, our current law of taxes has yet to cover all the tax bases in the new emerging businesses," he told The Jakarta Post.

This year

According to Bawazier, the government is committed to expanding the withholding tax scheme. It's expansion will be a part of the tax reform which will be proposed to the House of Representatives (DPR) some time in the current fiscal year, he said.

He also said that the government is encouraging the public to give their suggestions for the revision of the present tax law.

Mar'ie said that even though the withholding tax system will be expanded, the planned reform will be far simpler and more effective.

He argued that many taxpayers in the country are, in fact, discouraged from managing their own tax returns due to the complicated procedures. "As a result, taxpayers hire consultants to manage and file their tax returns," he added.

"In such a situation, you can imagine that the transfer of responsibility can lead to collusion between the taxpayers and consultants, and even with government officials," Mar'ie said. "The recent case of tax collusion in Tangerang is a good example."

He acknowledged that most tax legislators generally tend to draft a tax law according to a Western-oriented concept. "Such a concept usually ignores the reality of our society and no wonder if its implementation often fails," he cautioned.

Using the Western concept might make the tax law sound stronger but its implementation could be weak because the system is not in line with the real conditions of the Indonesian people, the minister said.

Flexible

"We should not expect too much from a strong law. We should be more realistic and our next tax law should, therefore, be more flexible," he said.

"It is better for us to put a lower target with a maximum return than to impose a stronger law but with smaller gain," he said.

Mar'ie suggested that the planned law should help make the management of tax collection more transparent.

He said a simple method of tax return management will also help restrain government officials from getting involved in irregularities and collusion.

Meanwhile, a prominent tax consultant, Hussein Kartasasmita, told the forum that irregularities in tax collection have occurred in the country partly due to the bad attitude of tax officials.

"It is more urgent, therefore, to improve the awareness of tax officials, as compared to introducing a new law," he said.

"If the bad mentality of the officials was not improved, the introduction of any new revised law would not be effective," he added.

Bawazier said the government is committed to instituting strong measures against its officials who are involved in any irregularities or collusion.

"Our measures include the layoff, down-grading and rotation of jobs. In certain cases, we can bring those involved to court," he said, adding that his office has thus far reported such irregularities twice a year. (fhp)