Tax regime should be simple, certain and competitive

Urip Hudiono, The Jakarta Post, Jakarta

Tax legislation should be "simple, certain and competitive," prominent economists and former finance ministers suggest if the government hopes to generate more tax revenues and stimulate economic growth.

"An effective tax regime is in essence one that reflects the aspects of simplicity and certainty, as well as one that can enhance a country's competitiveness," Ali Wardhana said during a hearing on Monday with the House of Representatives committee discussing the government's proposed amendments to the existing tax legislation.

Ali, who served three terms as finance minister from 1968 to 1983, explained that simplicity meant that tax assessment and payment procedures must be made as easy and convenient as possible for taxpayers.

"Individual taxpayers should be the main consideration here," he said. "If they have to fill out forms that are too complicated, then they will, of course, be reluctant, when all they want to know is how much taxes they owe and how to pay them."

Continuing its deliberation of the bills, the House had invited former finance ministers Ali Wardhana, J.B. Sumarlin and Fuad Bawazier to voice their opinions on the country's planned third major tax reform since 1983.

Also invited were Frans Seda, Mar'ie Muhammad and Bambang Sudibyo, who were unable to attend the hearing.

Simplicity, Ali continued, also meant reducing the number of taxes in the country, which at present stood at around 50, compared to half that number in Malaysia and Thailand.

"We also have to cut the time spent on dealing with taxes, which is still 560 hours according to a (World Bank) study," he said.

On the aspect of certainty and competitiveness, Ali stressed their importance as taxes affected investors, who demanded legal certainty and efficiency for their long-term business plans.

Still concerning certainty, Ali also mentioned the need for clear rules and an independent institution to resolve any disputes between taxpayers and tax officials.

"The problem in the current amendment bills is that the taxpayers can only object to a unit of the finance ministry, whose its independence is doubtful," he said. "It is also vaguely stated that the finance ministry 'may' form such a unit, when we need certainty that such an institution will indeed exist."

Meanwhile, Sumarlin, who served as finance minister from 1988 to 1993, was cautious about increasing the powers of tax officials without tight monitoring and control.

"Increasing the powers of tax officials must also be done prudently as this could lead to abuses of power, which would also be unfavorable for the business and investment climate."

Expanding the tax base also needed to be carried out carefully through, for instance, imposing taxes on intangible assets like bandwidths widely used by the telecommunications industry.

"We have to prevent such taxes from being passed on and becoming components of the high-cost economy," said Sumarlin.