The top taxpayers

The top taxpayers

The Indonesian government has made its annual announcement of the 200 top individual and corporate taxpayers as part of its campaign to inculcate a sense of pride in the people about fulfilling one of their basic civic duties -- paying taxes. The latest top taxpayer lists for 1993 were announced by Minister of Finance Mar'ie Muhammad over the weekend.

However, because the tax laws prohibit officials from divulging any information they receive from taxpayers within the course of performing their duties, we cannot know exactly how much those top taxpayers have paid the government.

We have no way of ascertaining that everyone stipulated in the lists are honest taxpayers who have fully paid all their taxes due. Nor can we conclude that the lists fully represent the top of the country's "iceberg of the richest".

The lists were drawn up on the basis of the amounts stipulated in the annual income tax returns filed by the taxpayers and not on the degree of their tax compliance. Hence, any judgment should be made on that parameter and on the fact that the tax payments, calculated on a self-assessment system, have not been audited by tax officials.

Those who question the reliability and accuracy of the ranking should realize that the tax payments do not necessarily reflect the wealth of the taxpayers. Because the lists were drawn up on the basis of income tax payments for a particular year, it was actual income, and not the size of assets, that determined the ranking of a taxpayer. Hence, for example, a taxpayer with a smaller net worth could have a higher ranking than another one with a much larger amount of assets simply because the former taxpayer earned much more from his assets than the latter in that particular year.

We nonetheless wonder why the top 200 individual taxpayers accounted for a mere 3.6 percent of total individual income tax receipts in 1993. We think the proportional contribution of individual taxpayers to the total income tax receipts, which was only 31 percent in 1993, could have been higher.

However, the regular announcement of the top taxpayers should be welcomed as this will gradually cultivate a sense of pride in being an honest taxpayer among the public. In fact, it is encouraging to note that there no longer seem to be any outright cynics who, having become prejudiced over the years by the extensive practice of tax evasion and the questionable integrity of many tax officials, simply ridicule those listed as people who are not smart enough to know how to evade taxes.

All indications validate the strong political will and determination on the part of the government to develop taxes both as the main source of state revenues and as a means of enhancing a more equitable distribution of income. Tax payments have increased in absolute terms by an annual average of 24 percent over the last 10 years. They also have risen sharply as a percentage of total state revenues from less than 20 percent in the early 1980s to 80 percent now.

The impressive achievements, instead of making the government complacent, have encouraged further improvement in the tax system and its administration. That can be seen from the amendment of the 1993 tax laws early this year, in what can be considered the second massive tax reform. The new tax codes lower the tax rates in a bid to broaden the tax base.

In another concerted program to broaden the tax base, the tax directorate general and the central bank recently issued joint rulings that require borrowers who apply for bank loans of more than Rp 30 million (US$13,500) to produce taxpayer registration numbers.

Given the widespread practice among many businessmen to inflate their financial data when dealing with their bankers but to understate things to tax officials, borrowers also are obliged to support their loan proposals with the same financial reports that are supplements to their annual income tax returns. This ruling will help minimize tax evasion.

But the stepped up tax campaign also is heightening the need for increasingly better governance. As most analysts have often cautioned the broader the taxpayer base, the stronger will be the public's demand for better accountability on the part of the government and for broader participation in the decision-making process regarding the national development program.