Post-tax amnesty era: How to make it a fresh start? Arifin Rosid, - PowerPoint PPT Presentation

Thoughts on Taxation Post-tax amnesty era: 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 arifinrosid.com

Overview: • Context • Fiscal dilemma • Long-term strategies • Short-term strategies • Conclusion arifinrosid.com

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion 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 ) A Janus-faced success? arifinrosid.com

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion The Indonesian ‘tax ratio’ is lower than those of most low income countries Tax ratio by per-capita GNI category, 1991  2006 40 36 35 30 26,8 Tax ratio (%) 25 20 16,5 13,9 12,8 15 10 5 0 High income Upper middle- Lower middle- Low-income Indonesia countries income countries income countries countries GNI per-capita category Source : Adapted from (IMF 2011, pp. 60-62) arifinrosid.com

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion Declining Indonesian tax ratios (%) 12,5 11,9 11,9 12 11,4 11,5 10,9 11 10,7 10,5 10,3 10 9,5 2012 2013 2014 2015 2016 2017 (APBNP) (APBN) Tax ratio (dalam arti sempit) ’12¾ tipping Source: www.kemenkeu.go.id/apbn2017 point’ phenomenon? arifinrosid.com

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion Principle dilemmas in establishing fiscal soundness Expenditures Revenues Increasing (in terms of Declining (in terms of Fiscal politics social and physical tax ratio-to-GDP) infrastructure) Striking the balance Deficit Increasing (3% rule) arifinrosid.com

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion Taxes are primary source of government revenue Yet, boosting tax revenue in Indonesia seemed very hard. Source: www.kemenkeu.go.id/apbn2017 arifinrosid.com

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion Justification and transition for fairness and tougher measures? Tax amnesty arifinrosid.com

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion So, a fresh start or a vicious circle? Influences on tax compliance outcomes Internal capabilities Operating context Tax compliance outcomes Revenue body’s actions  Revenue maximisation External factors  Taxpayers comply voluntarily Audit Economy  Integrity of and confidence Education Social shift in tax administration of the Guidance Public perceptions tax system Processes International changes Media Source : OECD (2014, p. 15) arifinrosid.com

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion Initial step: Tax reform • REFORMASI • • KONDISI SEKARANG KONDISI DIHARAPKAN 1. Institusi perpajakan perlu 1. Institusi perpajakan yg kuat, pembenahan: organisasi dan SDM; kredibel, akuntabel dengan proses sistem informasi, basis data, dan bisnis yg efektif dan efisien untuk proses bisnis; dan regulasi. optimalisasi penerimaan negara. 2. Sinergi antar lembaga perlu 2. Sinergi antar lembaga optimal dioptimalkan. 3. Kepatuhan WP yang tinggi 3. Kepatuhan WP rendah. 4. TAX RATIO = 11% 4. TAX RATIO = 14% FOKUS REFORMASI Source : KMK-360/KMK.03/2017 arifinrosid.com

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion Assessing internal capabilities Integrity of the registered taxpayer base Accountability Effective risk and management transparency Support given Efficient to taxpayers revenue Performance to help them management comply Outcome Areas Adequacy of On-time filing dispute of resolution declarations processes Accuracy of On-time information payment of reported in tax taxes declarations Source : www.tadat.org arifinrosid.com

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion Wagon wheel - TADAT Source : www.tadat.org arifinrosid.com

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion TADAT Performance Assessment: Indonesia ( self-assessed ) 75% (3 out of 4) of A indicators are scored D POA9 B+ POA1 Accountablity and Transparency B Integrity of the Registered Good practices in relation to C+ POA2 effective risk management C Effective Risk according to TADAT: Management D+ POA8 POA3 Studies of taxpayer behavior and Efficient D Revenue Supporting attitudes towards paying taxes Management Voluntary Compliance POA7 Effective Tax POA4 Dispute Timely Resolution As of 31 Dec 2016 Filing of Tax POA6 Declaration s Accurate POA5 Reporting in Timely Declarations Payment of Taxes Source : KMK-360/KMK.03/2017 arifinrosid.com

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion Further note: Indonesian tax authority has the least delegated authority that can be exercised without requiring external approvals among OECD, advanced, and emerging economies (56 countries). Delegated authority — Indonesia Countries Delegated % authority  To make tax rulings Australia 9 100%  To remit penalties/interest  To design internal structure US 9 100%  To re-allocate budget as deemed appropriate  To fix levels and mix of staff Singapore 9 100%  To set service standards  Malaysia 9 100% To influence staff recruitment criteria  To hire and dismiss staff India 8 100%  To negotiate pay levels Thailand 6 67% Indonesia 3 33% Source : OECD (2015) arifinrosid.com

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion Next step: Understanding tax compliance, undertaking environmental scanning Compliance behaviour types Source : McKerchar (2003, p. 188) The ‘ intention-action divide ’ phenomenon (World Bank, 2015) arifinrosid.com

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion Compliance risk management Operating context Identify risks Assess and prioritise risks Evaluate compliance Monitor outcomes: performance Analyse compliance behaviour  Registration against plan (causes, options for treatment)  Filling  Reporting  Payment Determine treatment strategies Plan and implement strategies Source : OECD (2010, p. 9). CRM has now a stronger focus on understanding and influencing taxpayer behaviour (Alink and Kommer, 2016) arifinrosid.com

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion Recognising a spectrum of taxpayers attitude to compliance Factors influencing Attitude to compliance Compliance strategy taxpayer behaviour Have decided not to Use the full force comply of the law Business Industry Don't want to comply, but Deter by detection will if we pay attention Taxpayer Try to but don't Assist to Sociological Economic always succeed comply Strategies aim to Psychological create pressure down Willing to do the Make it easy right thing Source : modified from OECD (2004, p. 41) Operating context arifinrosid.com

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion How to identify the cause of compliance issues? Source : Langham et al. (2012, p. 394). arifinrosid.com

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion First thing first: Establishing and undertaking segmented-enforcement projects seem crucial Information reporting regime (e.g. ILAP, Law No 9 2017) • Data quality issues? • A proxy for ‘ the disengaged ’ and the ‘ resisters ’? arifinrosid.com

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion Segmented-enforcement projects — brief illustration >20% chance of being audited Special audit projects Cluster A Assumptions Cluster A Other clusters • 600,000 tax • 30,000 tax • 570,000 tax Cluster Cluster returns returns returns TAX F B • 600 auditors • 300 auditors • 300 auditors • 10 audits/year • 20 audits/year • 10 audits/year Cluster Cluster E C • Total audits per • Total audits per • Total audits per year = 6,000 year = 6,000 year = 3,000 Cluster D < 1% chance of • Prob. of being • Prob. of being • Prob. of being being audited audited = 1% audited = 20% audited = 0.5% (6,000/600,000) (6,000/30,000) (3,000/570,000) Increasing penalties may not have a noticeable effect on compliance, unless the Uncertainty aversion Probability neglect probability of detection is increased Availability bias significantly (Gneezy and Rustichini, 2000). arifinrosid.com

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion Caution: Coercive audit has a backfiring effect! TAX 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) arifinrosid.com