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.