Public participation in increasing tax revenue
Currently, public debate on public finance — specifically on taxation — is dominated by two important issues. First, the fact that for the last seven years, the tax revenue target in the state budget (APBN) has never been achieved, including this year, where the tax office has predicted a Rp 90 trillion (US$7.7 billion) shortfall. Second, the idea on whether the tax administration should be given more authority and autonomy, in the form of a semi-autonomous revenue agency (SARA).
It is widely known that the government’s high dependence on tax to finance its budget has increased significantly during the last decade, pushing it to reach more than 70 percent of total government revenue.
However, despite numerous policies from the tax office, including the 2008 tax reform packages and high economic growth (5.5–6 percent), tax revenues are still falling below their intended targets.
This comes as no surprise as, according to an Organization for Economic Cooperation and Development (OECD) report, Indonesia’s tax-to-GDP ratio is only 12.6 percent, one of the lowest amongst G20 countries.
Such a situation has triggered a debate among lawmakers and politicians on whether the Directorate General of Taxation (DGT), currently under the Finance Ministry, should be given more autonomy and authority to collect tax
As International Monetary Fund (IMF) fiscal expert William Crandall argued in Revenue Administration: Autonomy in Tax Administration and the Revenue Authority Model, such autonomy can lead to better performance by removing impediments to effective and efficient management while maintaining appropriate accountability and transparency.
Although such ideas seems to be attractive to policymakers, including president-elect Joko “Jokowi” Widodo, who suggested the pressing need for the establishment of a SARA, anecdotal and academic evidence document that the formation of SARAs offers no guarantee for success (e.g., Mann, 2004). SARAs have not proven to be a quick-fix panacea.
Indeed, they provides a platform from which tax administration efficiencies can be generated, but their mere establishment offers no guarantee that tax revenues will pick up significantly.
Despite the mixed outcomes on implementation of SARAs in various countries, public discourse on how the government manages its tax administration should continue unabated.
It is important to invite public discussion and ask for public support toward tax policies, as the responsibility of raising tax collection does not rest solely on the tax office’s shoulder, but also in the hands of the public, who always demand more effective and lower-cost services.
With the high expectations surrounding the establishment of the new government, there is no better time to seek public support and participation to “make things work” in regards to tax collection and compliance.
The success story of how the public participated during the presidential election campaign and the selection of Jokowi’s Cabinet members shows that Indonesian people can play a significant role in deciding the country’s future.
Can we expect the same public support for the government to collect more taxes? Well, we can and we should — we are talking about a very important aspect of government efforts for public services, after all.
There are at least three ways to facilitate public participation in tax. First, through an NGO that focuses on tax monitoring and compliance. This group would not only work as a DGT watchdog, but would also put pressure on companies or individuals that try to dodge their tax obligations.
A prominent example of this is the UK tax pressure group Uncut, which successfully organized a campaign against Starbucks and Vodafone for their tax avoidance by creating public awareness through Facebook and Twitter earlier this year.
Second, there should be wider access to information for public scrutiny to monitor tax-payer compliance.
An example of this is the use of a database containing firm-specific information such as ownership details, in order to expose money-laundering and tax-avoidance schemes.
The proposal of an open database was one of the key issues raised in the latest G8 meeting. Such a database is expected to help untangle deliberately opaque ownership structures, thus helping authorities track down those who are using low-tax regimes overseas to illegally reduce their tax bills. By making the data public, the government and the public would be able to put more pressure on firms and individuals seeking to hide wealth and profits.
Third, similar to the recent development of more companies publishing their corporate social responsibility (CSR) reports, regulators should also encourage them to disclose how they pay their fair share of tax obligations.
As such, stakeholders could assess their tax compliance to participate in the development of the country through tax payments.