Tax Base Expansion Needs Extraordinary Strategy

In the 2021 State Revenue and Expenditure Budget (APBN), the tax revenue target is IDR1,229.6 trillion, an increase of IDR159.6 trillion compared to the last year's realization. At the same time, the government is expected to continue various incentive programs for taxpayers to accelerate economic recovery efforts. 

Achieving the revenue target is certainly not an easy task. The prolonged outbreak of the Coronavirus Disease 2019 (Covid-19) pandemic has resulted in continuous unsatisfactory economic growth. Meanwhile, the natural growth of tax revenue is usually associated with the assumption of economic growth and inflation. The assumption of economic growth by 5% is also considered highly optimistic given the current uncertainty.  

The Directorate General of Taxes (DGT) needs an extraordinary work strategy. In other words, there is no room for the authorities to do business as usual this year. Each year, the tax authorities are well aware of the extensification and intensification strategies. If in this year, both strategies are still conducted as usual, of course, the revenue target is hard to achieve in these conditions, although it is not impossible. This means that it takes an extraordinary strategy on how to expand the tax base, including increasing the number of registered taxpayers, and how to supervise them. 

Selective and On Target  

It must be admitted that taxes play a significant role in the efforts to accelerate economic recovery following the crisis and pandemic. Like two sides of the same coin, tax collection must be boosted to ensure the availability of budget for Covid-19 countermeasures. On the other hand, it must allow some parts of the tax payment not to be collected in order to stimulate the economy. 

VAT refunds acceleration, Income Tax Article (ITA) 22 on import incentives, government-borne taxes, as well as tax holiday and tax allowance are series of fiscal facilities that will be resumed this year. It will certainly reduce the potential for tax revenue, which in fact, even without a pandemic, has been suppressed by the economic slowdown. 

Theoretically, there are two policy options to optimize the tax revenue, namely broadening the tax base or increasing the tax rates. The second option is clearly not the government's choice following the trimmed corporate income tax rate and the release of various tax reliefs since last year. The reduction in the tax rates means that the expansion of the tax base is an absolute necessity. In addition, what must be considered is to ensure that the tax incentives are provided selectively and on target.  Since a long time ago, it was not an easy matter. 

Coordination and Collaboration  

The DGT has repeatedly stated that one of the DGT strategies for optimizing tax revenue this year is to broaden the tax base. One of the efforts that the DGT has pioneered since last year is the taxation of Trading Through Electronic System (PMSE). Although this measure has not been completely and effectively implemented, this step should be appreciated. 

However, the tax base expansion by simply relying on a digital tax policy is insufficient. Even without a pandemic, the DGT should actively target tax subjects who have been difficult to reach by the tax system (underground economy). For example, by limiting cash transactions that are not subject to any regulation. Surely, it is not the domain of the DGT. Therefore, it requires support from other authorities that have the power to regulate financial transactions to assist the DGT in strengthening fiscal.  

As a country that adheres to a self-assessment tax system, tax authorities must have reliable surveillance tools to be able to detect non-compliance taxpayers. A new and more effective strategy is needed, namely by strengthening the informal sector supervision system by cooperating with local governments. It is also important to enhance the Information Technology (IT) capacity and strengthen the database and it has actually been included in the 2019–2024 DGT strategic plan.  

The transformation of the tax service system must be promoted in order to educate, facilitate, and adapt to the taxpayers' increasingly digital lifestyle. In essence, the development of IT in taxation is a necessity in optimizing services, strengthening supervision, while systematically improving the taxpayers' voluntary compliance. 

In this case, the DGT cannot work alone. It needs to collaborate and synergize with other parties. This can include making effective use of data and information from third parties, such as banks or financial institutions. It is necessary to coordinate and collaborate across institutions so that the implementation of Automatic Exchange of Information (AEoI) or the Law on Access to Financial Information for Taxation Purposes can effectively increase the tax base. 

One thing is for sure, the extension and expansion of this tax base should be a broader campaign and should have gained political support. 

*The article was published in Majalah Pajak, on 4 March 2021. 

 

Majalah Pajak

Disclaimer! This article is a personal opinion and does not reflect the policies of the institution where the author works.