Thoughts on Taxation
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How to make it a fresh start?
Arifin Rosid, Ph.D., Ak., C.A.
Alumni School of Taxation and Business Law,
UNSW Business School, UNSW Sydney
Presented at Tax Cafe 7, Jakarta, 17 October 2017
Post-tax amnesty era:
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Overview:
• Context
• Fiscal dilemma
• Long-term strategies
• Short-term strategies
• Conclusion
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A Janus-faced success?
The most successful tax amnesty (TA) in the world
in the last fifty years
4,885 T rupiah declared assets (
40% of GDP)
115 T rupiah tax revenue ( 1% of GDP)
Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion
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The Indonesian ‘tax ratio’ is lower than those of most
low income countries
36
26,8
16,513,9 12,8
0
5
10
15
20
25
30
35
40
High incomecountries
Upper middle-income countries
Lower middle-income countries
Low-incomecountries
Indonesia
Ta
x r
ati
o (
%)
GNI per-capita category
Tax ratio by per-capita GNI category, 19912006
Source: Adapted from (IMF 2011, pp. 60-62)
Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion
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Source: www.kemenkeu.go.id/apbn2017
11,9 11,9
11,4
10,7
10,3
10,9
9,5
10
10,5
11
11,5
12
12,5
2012 2013 2014 2015 2016(APBNP)
2017(APBN)
Tax ratio (dalam arti sempit)
Declining Indonesian tax ratios (%)
’12¾ tipping
point’
phenomenon?
Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion
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Principle dilemmas in establishing fiscal soundness
RevenuesExpenditures
Deficit
Fiscal politicsIncreasing (in terms of
social and physical
infrastructure)
Increasing (3% rule)
Declining (in terms of
tax ratio-to-GDP)
Striking the balance
Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion
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Taxes are primary source of government revenue
Yet, boosting tax
revenue in Indonesia
seemed very hard.
Source: www.kemenkeu.go.id/apbn2017
Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion
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Justification and transition for fairness and tougher
measures?
Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion
Tax amnesty
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Influences on tax compliance outcomes
So, a fresh start or a vicious circle?
Source: OECD (2014, p. 15)
Revenue body’s actions
Audit
Education
Guidance
Processes
External factors
Economy
Social shift
Public perceptions
International changes
Media
Tax compliance
outcomes
Revenue maximisation
Taxpayers comply
voluntarily
Integrity of and confidence
in tax administration of the
tax system
Internal capabilities Operating context
Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion
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Initial step: Tax reform
• KONDISI SEKARANG
1. Institusi perpajakan perlu
pembenahan: organisasi dan SDM;
sistem informasi, basis data, dan
proses bisnis; dan regulasi.
2. Sinergi antar lembaga perlu
dioptimalkan.
3. Kepatuhan WP rendah.
4. TAX RATIO = 11%
• REFORMASI • KONDISI DIHARAPKAN
1. Institusi perpajakan yg kuat,
kredibel, akuntabel dengan proses
bisnis yg efektif dan efisien untuk
optimalisasi penerimaan negara.
2. Sinergi antar lembaga optimal
3. Kepatuhan WP yang tinggi
4. TAX RATIO = 14%
FOKUS REFORMASISource: KMK-360/KMK.03/2017
Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion
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Assessing internal capabilities
Source: www.tadat.org
Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion
Performance Outcome
Areas
Integrity of the registered
taxpayer base
Effective risk management
Support given to taxpayers to help them
comply
On-time filing of
declarations
On-time payment of
taxes
Accuracy of information
reported in tax declarations
Adequacy of dispute
resolution processes
Efficient revenue
management
Accountability and
transparency
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Wagon wheel - TADAT
Source: www.tadat.org
Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion
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Good practices in relation to
effective risk management
according to TADAT:
Studies of taxpayer behavior and
attitudes towards paying taxes
A
B+
B
C+
C
D+
D
POA1Integrity of the
Registered
POA2Effective Risk
Management
POA3Supporting
Voluntary
Compliance
POA4Timely
Filing of
Tax
Declaration
sPOA5Timely
Payment
of Taxes
POA6Accurate
Reporting in
Declarations
POA7Effective Tax
Dispute
Resolution
POA8Efficient
Revenue
Management
POA9Accountablity and
Transparency
Source: KMK-360/KMK.03/2017
TADAT Performance Assessment: Indonesia (self-assessed)
As of 31 Dec 2016
Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion
75% (3 out of 4) of
indicators are scored D
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Source: OECD (2015)
Further note:
Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion
Indonesian tax authority has the least delegated authority that can be
exercised without requiring external approvals among OECD, advanced, and
emerging economies (56 countries).
Countries Delegated
authority
%
Australia 9 100%
US 9 100%
Singapore 9 100%
Malaysia 9 100%
India 8 100%
Thailand 6 67%
Indonesia 3 33%
To make tax rulings
To remit penalties/interest
To design internal structure
To re-allocate budget as deemed appropriate
To fix levels and mix of staff
To set service standards
To influence staff recruitment criteria
To hire and dismiss staff
To negotiate pay levels
Delegated authority — Indonesia
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The ‘intention-action divide’ phenomenon (World Bank, 2015)
Source: McKerchar (2003, p. 188)
Next step: Understanding tax compliance, undertaking
environmental scanning
Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion
Compliance behaviour types
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Monitor performance against plan
Evaluate compliance outcomes:
Registration
Filling
Reporting
Payment
Analyse compliance behaviour (causes, options for treatment)
Determine treatment strategies
Plan and implement strategies
Identify risks
Assess and prioritise risks
Operating context
Compliance risk management
Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion
Source: OECD (2010, p. 9).
CRM has now a stronger focus on understanding and influencing
taxpayer behaviour (Alink and Kommer, 2016)
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Have decided not to comply
Factors influencing taxpayer behaviour
Attitude to compliance
Don't want to comply, but will if we pay attention
Try to but don't always succeed
Willing to do the right thing
Use the full force of the law
Compliance strategy
Deter by detection
Assist to comply
Make it easy
Taxpayer
Business Industry
Sociological Economic
PsychologicalStrategies aim to
create pressure down
Source: modified from OECD (2004, p. 41)
Recognising a spectrum of taxpayers attitude to compliance
Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion
Operating context
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Source: Langham et al. (2012, p. 394).
How to identify the cause of compliance issues?
Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion
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Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion
First thing first: Establishing and undertaking
segmented-enforcement projects seem crucial
• Data quality issues?
• A proxy for ‘the disengaged’ and the ‘resisters’?
Information reporting regime (e.g. ILAP, Law No 9 2017)
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TAX
Probability neglect
Cluster A
Cluster B
Cluster C
Cluster D
Cluster E
Cluster F
>20% chance of
being audited
< 1% chance of
being audited
Assumptions
• 600,000 tax returns
• 600 auditors
• 10 audits/year
• Total audits per year = 6,000
• Prob. of being audited = 1% (6,000/600,000)
Cluster A
• 30,000 tax returns
• 300 auditors
• 20 audits/year
• Total audits per year = 6,000
• Prob. of being audited = 20% (6,000/30,000)
Other clusters
• 570,000 tax returns
• 300 auditors
• 10 audits/year
• Total audits per year = 3,000
• Prob. of being audited = 0.5% (3,000/570,000)
Uncertainty aversion
Availability bias
Special audit projects
Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion
Segmented-enforcement projects — brief illustration
Increasing penalties may not have a
noticeable effect on compliance, unless the
probability of detection is increased
significantly (Gneezy and Rustichini, 2000).
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TAX
Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion
Caution: Coercive audit has a backfiring effect!
The backfiring effect on evasion could be due
to taxpayers untargeted auditing, leading to
perception of distrust among compliant
taxpayers too few audits do not reach out
to non-compliant taxpayers; too many audits
do not discriminate between the cooperative
and freeriding taxpayers.
Source: Kirchler (2017)
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Introduction Empirical settings Findings Policy implications Conclusion
Conclusion
• Tax amnesty has provided transition and justification
for improving taxpayers’ compliance.
• Long- and short-term strategies are both needed to
achieve this goal.
• Indonesian tax authority needs to improve its
internal capabilities as well as understand its
operating context. Therefore, internal and
environmental scanning are both crucial.
• ‘Segmented-enforcement’ approach needs to be
considered in the context of the wider vision of
achieving long terms goals, but with caution.
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Thank youDISCLAIMER: The opinions and views expressed in this presentation
are those of the presenter and do not necessarily reflect the official
position or policy of the institution where the author serves
