Viewpoint: Ay Tjhing Phan
The government has aimed to enhance compliance of taxpayers and to expand the tax base in an effort to raise revenues. In 2017 the government’s successful tax amnesty programme ended, yielding the reporting of Rp4881trn ($368bn) worth of previously undisclosed assets, redemption money payments amounting to Rp114trn ($8.6bn) and other tax revenue valued at Rp21trn ($1.6bn). Following up on this success the government now wants to improve compliance by auditing taxpayers that have not participated in the programme. The government aims to use the information received during the tax amnesty to cross reference future tax returns filed by taxpayers that used the programme. Regarding the auditing of taxpayers that did not participate in the tax amnesty, the government and the tax office should strike a balance between identifying taxpayers that have indeed not disclosed assets and/ or income, and being overly rigorous with taxpayers that did not avail of the programme as they were already compliant with their tax obligations.
To achieve the stated goal of improved tax compliance, another aspect the government wants to focus on is expanding the number of registered taxpayers. Prior to the amnesty programme being launched in 2014 Indonesia counted approximately 27m registered taxpayers, while the workforce was estimated to be 121m. It was also estimated there were 20m companies, but only 2.5m of these were registered taxpayers. In 2017 this number increased to 36m. Although not all unregistered taxpayers would necessarily have tax liabilities to settle, it seems that expanding the tax base would be beneficial for increasing the government’s tax revenue in the long run. We understand the government may explore other avenues to increase this number. Concurrently with programmes to register more taxpayers in a country where tax compliance can be difficult, the government could look to lowering the administrative burden of voluntary compliance by further simplifying its IT systems and conducting information campaigns to educate taxpayers on how to comply with their filing obligations.
From 2018 Indonesia is expected to provide information about national taxpayers residing in partner countries and, more importantly, receive information about foreign taxpayers residing in the country. In the context of preparing for Indonesia’s automatic exchange of information obligations, the Law on Financial Information Access for Tax Purposes of 2017 has provided the tax office with access to bank accounts with balances exceeding Rp1bn ($75,400). In addition to providing the tax office with the relevant data to share with partner countries, the law also allows for increased visibility on the financial position of domestic taxpayers.
Another point that could grow the level of tax compliance is increasing the work efficiency of the tax office. Currently, there are events that prompt automatic tax audits, including situations where the risk of tax evasion is limited. Instead, the tax office should pursue risk-based tax audits and focus on areas that are expected to increase tax revenues.
In terms of expanding the tax base, the Indonesian government introduced new Controlled Foreign Company (CFC) legislation. This expands the CFC definition to include indirectly held companies and trusts. The effect of this regulation will be that income earned by Indonesian taxpayers through directly and indirectly held companies will be subject to tax as it is earned, rather than at the time when it is repatriated. With these efforts the country is well placed to increase the tax compliance of its taxpayers and expand its revenue intake. In a country where 86% of the state budget comes from tax revenue, this will hopefully provide Indonesia with the needed financial means to support the government in achieving its ambitious growth targets.
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