Tough ruling to be issued soon for tax evaders

The Jakarta Post, Jakarta

A joint decree from the Ministry of Finance and Ministry of Justice and Human Rights that allows for the jailing of recalcitrant taxpayers for a maximum one year without trial will be signed next week, according to a senior tax official.

Director General of Taxation Hadi Poernomo said on Tuesday that the decree would be effective as soon it was signed.

"We are still waiting for the Minister of Justice and Human Rights (Yusril Ihza Mahendra) who is still on an overseas trip," he told reporters, adding that the two ministers had in principle agreed to the contents of the decree.

The joint decree, which was supposed to be signed in April, was expected to help boost tax compliance and increase tax collection revenue.

According to the directorate's data, tax arrears during the past 10 years amounted to around Rp 17 trillion (about US$2.4 billion).

Such huge tax debts partly explain the country's tax ratio of only around 13 percent of gross domestic product (GDP), compared to the ratio in neighboring countries of around 40 percent.

As the cash-strapped government is desperately looking for domestic revenue sources to finance the state budget, boosting tax revenue by revamping the tax administration area is seen as a crucial step.

According to regulation No. 137/2000, which came into effect early in 2001, the tax office is actually allowed to detain tax evaders. However, this apparently was not effective due to the lack of support from the Ministry of Justice and Human Rights, which has the authority over penitentiaries.

So far measures taken by the tax office against uncooperative taxpayers mainly focus on seizure of assets and travel bans.

Based on the joint decree, temporary detention is imposed on non-cooperative taxpayers who have a tax obligation amounting to more than Rp 100 million to either the central or local governments.

Prior to imposing detention, the tax office will send a letter to tax evaders asking them to pay their taxes within 21 working days. If the letter is ignored, the tax office will issue a "distress warrant" demanding the taxpayers settle their tax obligation within 14 working days. If the taxpayers still refuses to comply, without a reasonable explanation or any attempt to appeal to the tax court, the tax directorate would start the process of sending the unscrupulous taxpayer to jail.

But there is skepticism that even with the introduction of the joint decree, tax evaders can still avoid their obligations by bribing corrupt tax officials.