Tax reform to expand withholding tax system

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)