Compliance vs Tax Gap

Bhima Yudhistira Adhinegara
INDEF Researcher

IO – The realization reported of annual tax returns (SPT) in 2018 appears to be slightly disappointing, as out of 14 million taxpayers targeted, only 10.5 million or 71.75% have filed their SPTs, for both individual and entity taxpayers. Considering that there are 18 million total registered taxpayers, this means only 55.8% have reported their tax obligations this year.

The amount of tax reports, post-tax amnesty program, has indeed dropped drastically. In 2017, there were 12 million taxpayers who reported their SPT, down from 12.73 million taxpayers in 2016. Although the decline was due to the rise of the lower limit of non-taxable income (Penghasilan tidak kena pajak/PTKP), on aggregate the number of taxpayers (WP) still increased, considering the additional 2.62 million people entering the workforce in August 2017. However, in reality, not all taxpayers intended to report their tax obligation, and this kept the country’s tax ratio to stick at only around 11%, behind the tax ratio of other ASEAN countries.

Technically, the simplest problem is the information dissemination (socialization) on SPT reports, which has not been done aggressively. Directorate General for Taxation only focused on the disseminating information in cities, while the majority of the workforce, namely 26.7%, are working in the agriculture sector, and mostly living in rural areas. Then, as many as 57% of the workforce is working in the informal sector. As a result of the lack of a public campaign, tax report compliance was dominated by employees working in offices.

The e-filing model report will draw the interest if internet access is satisfactory. The fact is that internet penetration in outside Java is still below 20%. The level of education of the workforce in Indonesia is dominated by junior high school, which is at a 70% level. Therefore, it is not surprising that internet literacy is behind neighboring countries.

The next factor which is more fundamental is the gap of treatment for major taxpayers and average taxpayers. Just imagine: the public has been long presented with unending legerdemain, acrobatic maneuvers by the Government. In 2016, as a case in point, the Finance Ministry announced that there are 2,000 foreign companies who maneuvered to avoid paying tax for the last 10 years. They did that by manipulating financial reports, making their company falsely report net losses. The total losses to the State from this tax avoidance maneuver reach around Rp500 trillion. The resolution of these cases has shown no progress until today.

In early 2016, the world was stunned by the revelation of the Panama Papers, which 11.5 million confidential documents of well-known politicians, businessmen, and artists, who improperly transferred money to the tax haven countries were leaked onto the internet. As a result, the Prime Minister of Iceland resigned, followed by large-scale tax investigations in Europe and USA. Unfortunately, in Indonesia, there were no follow-up actions on the politicians and businessmen exposed to have moved freely in tax haven countries. The data is there; however, there was no serious investigation undertaken. The government even proudly provides a red-carpet by launching a tax amnesty program at the time the Panama Papers case was revealed.

At end 2016, Finance Minister Sri Mulyani threatened to announce the 8 people listed in the 50 Richest people in Forbes who still do not have any Tax Identity Number (NPWP). The NPWP was launched some 10 years ago, meaning that there is a potentially huge value of unpaid tax. Students and MSMEs are encouraged to create NPWP, while rich people walk freely without having had to apply for an NPWP. How then can they pay tax?

The story does not end there as in October 2017, the Singapore Monetary Authority, together with the UK Financial Conduct Authority issued a result of an investigation over a suspicious US$1.4 billion transfer of money (equal to Rp18.9 trillion) in 2015 to the United Kingdom, via Singapore, undertaken by an Indonesian citizen.  As reported by Bloomberg International, the Monetary Authority of Singapore suspected the transfer was made by a bank customer, one who happened to be an Indonesian, to avoid paying tax (tax evasion) to Singapore.

In November 2017, another case emerged, namely the Paradise Papers, a case similar to the Panama Papers; however, the total number of the documents reached 13.4 million. With the availability of these papers that can be accessed freely by the public, tax officers should have responded. Through these documents, the names of the taxpayers can be traced, those who are suspected to have evaded tax. However, again nothing has been done about this case and it is thus “case closed”.

So, how can society, and in particular lower-class people show empathy to tax officers if the law enforcement is so terrible? Large cases cannot be resolved or are be ignored, while tax officers are aggressively chasing small taxpayers such as MSMEs. In 2017, since there was a shortage of tax revenues, strange ideas emerged on the surface, starting from the changing the limit of taxable income (PTKP) through to the Automatic Exchange of Information (AEOI), whose minimum funds parked in the bank are set at Rp200 million per person.

As a matter of fact, the Government also needs to record that as many as 62.5 million of the workforce at present are in the category of productive age, young people called the Millennial generation. They are really critical about the gap of treatment shown by tax officers in various media outlets. Do not let these critical Millennial generation young people deliberately not report taxes as a form of protest due to unfair treatment of the taxpayers. It is not that they are lazy about submitting their SPT, but do not want to pay tax. This is input to assure all that the Government no longer maneuvers with problematic tax cases and, instead, focuses on tax law enforcement. The hope is that the trust of tax officials is improving rather than degraded.