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Yustinus PrastowoExecutive Director, Center for Indonesia Taxation Analysis
Symposium on Tax and Corruption:An Asia-Pacific PerspectivesSydney, 12th-13th of April 2017
New Perspective of Indonesia Comprehensive Reform:
Integrating Corruption Eradication and Tax Optimisation Agenda
Center for IndonesiaTaxation Analysis
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Center for IndonesiaTaxation Analysis
Background
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Tax Compliance in IndonesiaReview of Indonesia Tax Amnesty Program
Corruption Perception in Indonesia
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Indonesia Has Low Tax Revenue Performance 2006-2016the target has never been achieved, except in 2008
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107%
94% 95% 97%94% 93% 92%
82%
81,4%
0%
20%
40%
60%
80%
100%
120%
0
200
400
600
800
1000
1200
1400
1600
2008 2009 2010 2011 2012 2013 2014 2015 2016
Target Realization % realization
IDR Tn
Source: State Budget Report
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Indonesia Tax Ratio is calculated by Central Tax Revenue / GDP
Source: http://data.worldbank.org/indicator/
9,33 9,30 9,4811,03 10,93 10,54 10,31 10,36 10,73 10,89 10,70
0
5
10
15
20
25
30
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Indonesia OECD Singapore Malaysia
Brazil Russia South Africa Lower middle income
Indonesia Has Low Tax Revenue Performance 2006-2016tax ratio is relatively low…
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49,4%
30,2%33,1%
54,1%58,1%
46,3%
53,7%
61,0%58,7% 60,0%
62,4%
0%
10%
20%
30%
40%
50%
60%
70%
0
5
10
15
20
25
30
35
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
In M
illio
n
Registered Taxpayer SPT Registered Taxpayer
Taxpayer that already have reported tax return Compliance Ratio
Indonesia is still haunted by low compliance of both individual and corporate taxpayers…
Source: DGT, MoF
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Who are they???7
Indonesia faced various mega-corruption scandals…involve government officials from executives, legislatives, and judiciaries, have caused the tax fund wasteful
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Facts in Indonesia
There are many bribery and extortion case that involve public
officials of DGT institutions, such as;
Bribery Case Extortion case
Gayus Tambunan; Dhana Widyatmika; Bahasyim Assifie;
Mohammad Dian Irwan Nuqisra and Eko Darmayanto; and
Tommy Hendratno.
Corruption scandal occurred recently involving Handang
Sukarno, from Directorate of Law Enforcement, DGT.
Pargono Riyadi; Herry Setiadji, Indarto
Catur Nugroho and Slamet Riyana.
Recently the e-KTP corruption cases erode government fund about IDR 2 trillion.
In 2016, Indonesia faces many corruption scandals >> about 482 case
With total revenue losses IDR 147 tn
(ICW Annual Report, 2016)
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32 32
34
36
37
118 114 107
88 90
0
20
40
60
80
100
120
140
29
30
31
32
33
34
35
36
37
38
2012 2013 2014 2015 2016
Ran
k
Sco
re
Score Rank
Indonesia Corruption Perception Index
Source:http://www.transparency.org/news/feature/corruption_perceptions_index_2016
Center for IndonesiaTaxation Analysis
10
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
30,00%
35,00%
0
10
20
30
40
50
60
70
80
90
100
tax ratio vs corruption perception index 2012-2015
CPI tax ratio
Source: http://data.worldbank.org/indicator, http://www.transparency.org/news/feature/corruption_perceptions_index_2016
Center for IndonesiaTaxation Analysis
Corruption Potential based on Sector in Indonesia
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46
52
51
50
47
53
44
57
51
53
60
47
44
52
57
57
54
52
57
48
62
55
58
63
52
49
59
63
64
61
59
63
56
66
61
63
67
58
56
Licencing
Basic Services
Taxation
Procurement
Justice
publishing trade quotas
Police
Credit
Customs and Excises
Supervisors and Examinors Institutions
Military
Excecutive
Legislative
Score
2015 2014 2013
Source: Indonesia Transparency International (Corruption Perception Survey 2015)
Center for IndonesiaTaxation Analysis
Bribery Interactions at Vertical Institutions
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17%
26%
22%
41%
35%
13%
43%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0
100
200
300
400
500
600
Regional Office ofProvincial
Directorate Generalof Tax
Regional Office ofProvincial
Directorate ofTreasury
Regional Office ofProvincial
Directorate of StateAsset
Regional Police Provincial LandNational Agency
University High Court
Vertical Institutions
Interaction Experience Bribery Interaction Bribery Probability
Source: Indonesia Transparency International (Corruption Perception Survey 2015)
Center for IndonesiaTaxation Analysis
Low Tax Compliance
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inadequate number
of tax officials,
which in 2015 there
were only 37.987.
From that number,
tax auditors were
only 4,552
(Directorate General
of Tax, 2015).
limited access to
financial account
because of
confidentiality as
stipulated in Law
No. 10 Year
1998.
lack of trust in government is also
believed to be one factor that affect low
level of tax compliance.
lack of enforcement derived
from lack of DGT capability to
optimize tax revenue.
Andreoni et al. (1998)
social factors play an
important role in tax
compliance decisions.
Hosmer (1995),
trust is an important social
factor due to its significant
impact on individual behavior,
relationships, and economic
exchanges
Zucker (1986, p. 56)
trust is vital for the maintenance of
cooperation in society and
necessary as grounds for even the
most routine, everyday interactions
Lewisand Weigert (1985, p.
968)
trust is a collective attribute
that is driven by the
relationships of people within
a social system and is based
on a cognitive process which
allows differentiating persons
and institutions that are
trustworthy from the ones
that are not
Problem
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Why people are losing their trust on Government???
Participation level of taxpayer in fulfilling their tax liability are strongly affected by their perception
on government, whether the government free from corruption practice (Bekaoui:2008),
provide the best service (Togler: 2007)
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Any person who violates the provisions of the Act which
expressly states that the violation of the provisions of
the Act such as corruption applicable provisions laid
down in this Act (Arti. 14 Anti Corruption Act)
Disharmony Between Anti-Corruption Law and Other Regulation
Supreme Court Law No. 13 of 2016
concerning Procedure of Handling Criminal Act for Cooperation
KUP Law
Law No. 8 of 2010 concerning
Countermeasure and Eradiction of Criminal
Act of Money LaunderingOther
Taxation Law
Need to amend and harmonize all of those regulations
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What’s the matter with Anti-Corruption Law?
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Anti-Corruption Law is only for state officials
It is unable to reach private sector, both for individual or
corporation who causes harmthe state finance or the economy of the country
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Optimal Tax
Revenue
Tax Compliance
Excellent bureaucracy,
Integrity and
Professional Institutions.
Tax Payer
Consciousness
Social Capital
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The aim of this paper
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low level of tax compliance in Indonesia lack of trust to the government
Corruption
Does corruption,
especially corruption in
tax sector affect the level of tax
compliance in Indonesia??
KPK DGT How the synergy between Corruption Eradication Commission
(KPK) and Directorate General of Tax (DGT) should be established
in order increase tax compliance level?
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THEORY OF TAX COMPLIANCEand its relation with corruption
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Taxpayer non-compliers are rational individuals.They seek to maximize their own well-being, but through illegal instead of legal means.
Compliance Theory and Self-reporting
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Slippery Slope Framework(Kirchler, Hoelzl, and Wahl 2008)
Quasi Voluntary:
• Perceptions to the
government, whether free of
corruption
(Belkaoui & Riahi, 2008),
• Participative in the preparation
of tax legislation
(Torgler 2005),
• The strength of the overall
construction with the tax
system
(Brautigam, Fjeldstad, &
Moore, 2008).
“Trust in Authority”“Power of Authority”
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Solutions by the Government to gain public trusts
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enacted Law No. 31 Year 1999 about
Corruption Eradication as amended by Law
No. 20 Year 2001 (Anti-Corruption Law)
formed a special agency dealing with corruption
cases, KPK through Law No. 30 Year 2002
about the Corruption Eradication Commission.
KPK is an independent state institution that is free from influence of any authority
in carrying out its duties and authorities. So far, KPK is one of government institution
that most trusted since its considered high integrity, neutral from conflict of interests, and
consistent in performance.
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Breakthroughs created by KPK in 2016
Integration at the Coordination and Supervision of
Prevention by providing prosecution field. As the result,
the institution will be able to obtain more data and facts
on the target area program.
Increasing the deterrent effect by adding the
prosecution intensity including Operasi Tangkap Tangan
(OTT). In 2016, OTT by KPK is the most OTT of KPK
history.
Launching e-LHKPN application. This application
provides facility to state officials at remote areas to
report his/her wealth without coming to the capital city.
Source: Annual Report of KPK 2016
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Proposed Solutions:
Integration of Combating Corruption And
Improving Tax Compliance
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Harmonization of Anti-Corruption Law and Tax Law
Corruption Not the only one factor, but these factors remain important
Tax Compliance
Law Enforcement
Taxpayer ‘s Trust to DGT
Corruption Case
inversely proportional
directly proportional
inversely proportional
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KPK DGT
Corruption Eradication
Tax Authority
legislation that underpins the existence and execution of their
duties stand alone
Separate Authorities
Tax: biggest instrument of the
state income
Need KPK’s role to eradication
of corruption in taxation sector
prone to be abused
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Any person who acts unlawfully to enrich themselves or another person or a corporation that is detrimental to the state finance and economy of country (Art. 2)
does not include fraudulent schemes and tax fraud that causes state financial loss
.: Corruption Meaning in Anti-Corruption Law
clause “State Economic” should be cleared to be space to accommodate the corruption in taxation areas
"Any person with the intention of enriching themself or another person or corporation, abuse of authority, opportunity or means available to him because of the position or positions that could harm the state finance or the economy of the country ...“ (Art. 3)
Preventing
Coordination, Supervision, Monitoring
Article 1 KPK Law“Corruption Eradiction a series of actions to prevent and combat corruption through the efforts of coordination, supervision, monitoring, investigation, prosecution and examination in court, with the participation of community based regulation applicable
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Cooperation of DJP, KPK, PPATK, and OJK
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Directorate General of Tax and Fiscal Service Authority
Akasia Akrab
DGT Financial Service Authority
Akasia makes it easier to access the suspicious financial transaction for examination,
investigation, and billing.
Constraints:
• DGT still under the Ministry of Finance • Banking secrecy
Taxpayer’sSuspicious financial data
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Examination and/or investigation of taxpayer involved in corruption and already convicted by permanent legal force
Establishment of special purpose of Tax Office for taxpayers who will
submit Wealth of State Officer Report (called as LHKPN)
Directorate General of Tax and Corruption Eradication Commission
DGT
1
2
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The Government should also considering DGT to conduct joint audit with other institutions that have investigators…
DGT
DG Customs and Excise
Indonesian National Police
Ministry of Environmentand Forestry
Ministry of Marine and Fisheries Others
Joint Audit
Moreover, DGT officials should be protected by law in collecting tax / conducting audit from rogue taxpayers.
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DGT DG Customsand Excise
Ministry of Finance
President President
RevenueAuthority
Authority to manage own Budget, human resource, and organization
Credible Accountable
responsibility
responsibility
responsibility
Organization Transformation
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TAX AMNESTY AS BEGINNING MOMENTUM OF COMPREHENSIVE
REFORM AGENDA
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965.9
83
2.0
00.0
00
R E A L I Z A T I O N T A R GE T
PARTICIPANT
135
165
REAL IZATION TARGET
TAX COLLECTION
4.8
86
4.0
00
REALIZATION TARGET
DISCLOSED ASSET
147
1.0
00
REAL IZATION TARGET
REPATRIATION COMMITMENT
Review of Indonesia Tax Amnesty ProgramSummary
Participant of tax amnesty program did not reach the target. Moreover, this number was smaller than participant of Sunset Policy in 2008 , which approximately 5,6 million new taxpayers (Directorate General of Tax, 2009).
In addition, low amount of repatriated asset commitment, at Rp147 trillion, under the target of Rp1000 trillion.
82%122%
14,7%
48%
Source: DGT, MoF
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2016 tax amnesty is the bridge toward comprehensive tax reform that not only related to tax law, but also integration of the tax aspects in Anti-Corruption Law.
Revision of the Law on Taxation, Banking Law, and the Anti-Corruption Law;
Enhance tax authorities access to financial data and
banking;
institutional transformation by building a credible,
competent, and accountable tax authority.
strengthen coordination of law enforcement institutions,
including KPK as an institution eradication of
corruption
improving tax administration by automation, digitization,
and implementation of single identification number (SIN).
The preconditions for a strong tax system after
tax amnesty
Reform momentum: Tax Amnesty
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CONCLUSION AND POLICY RECOMMENDATION
The Anti-Corruption Law and KPK become important to be paid attention to improve tax compliance.
To integrate anti-corruption and tax optimization agenda, the government needs to revise the Anti-Corruption Law and Tax Law.
Governments need to design a new structure of coordination between government institutions, including KPK, DGP, Indonesia Financial Service Authority (OJK), and Indonesian Financial Transaction Reports and Analysis Center (PPATK).
Redesign the architecture of budget policy by implementing earmarking model into specific public sector.
By bringing this comprehensive reform agenda, it will be an effective strategy to increase the level of tax compliance because in the same time, the corruption eradication agenda, the strengthening of tax administration capacity, the quality of government expenditure, and better coordination of government institution will increase the level of taxpayers’ trust.
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T H A N K Y O U
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