The atmosphere of Eid remains, so does the spirit of forgiving in Indonesia. It is in line with the surface of the plan to re-implement the tax amnesty, which appears to portray the government—and the House of Representatives, of course—as a forgiving and merciful state institution. Ironically, it’s the same story all over again: the amnesty will be granted to rich people who hide their wealth with the motive of avoiding taxes. The essence of apology or abundant forgiveness seems going too far as it betrays obedient taxpayers.
This is related to another proposed amendment to the General Provisions and Taxation Procedures Law (UU KUP) through the omnibus law scheme. The draft of Omnibus Law reported in the media is not only squeezing tax amnesty articles but also revising a number of clauses in the Income Tax Law, the Value Added Tax (VAT) and Sales Tax on Luxury Goods (STLG) Law, as well as the Excise Law.
The points submitted for the tax amnesty volume II during Joko Widodo's administration are allegedly not much different from those in the previous tax amnesty program, which took place from 1 July 2016 to 31 March 2017. However, the suggested redemption rate is reportedly higher than before. Yet, once the law entered the House, it is not impossible that the rate will be discounted, just like before.
It reminds us of Will Rogers’s satire. The American actor and humorist once said, “the only difference between death and taxes is that death doesn't get worse every time Congress meets,” teasing the congress and the government sitting down together to discuss tax policy.?
The government seems inconsistent by initiating the tax amnesty volume II. Indonesian people—whose majority of assets and cash are limited to pay redemption—certainly still remember the firm statements of a number of high-ranking officials, saying that there will be no more amnesty for tax evaders after the end of the tax amnesty program on 31 March 2017. The threatening sentences were then packaged nicely by celebrities and analysts who were endorsed as tax amnesty ambassadors.
We all know that the government needs money to fund the development and pay the civil servants. And taxes have been the most dominant source of state revenue since ancient times. It is even more true during the economic crisis caused by the Covid-19 pandemic. Critical times require the government to act prudently in managing the state's cash flow. Instead of achieving the tax revenue target, the opposite happened: being in debt became a realistic option in times of crisis, even though it was not populist.
Indeed, no policy can benefit nor please all parties. But the issue is more on the impartiality and consistency of government policy. In the context of tax amnesty, both issues—impartiality and consistency—are clearly on public. We are talking about 270 million Indonesian citizens, the majority of whom are diligently paying taxes even though they are not aware and may be unfamiliar with tax provisions. The number may not include the 1% of the wealthy who control nearly half of the country's wealth (Global Wealth Report 2018), who can afford and certainly have the interest of paying the tax amnesty redemption. ?
It brings up the question, for what and for whom is the tax amnesty? Not all Indonesians have the ability to pay redemption and need amnesty. Are all these meant to those included in the Global Wealth Report 2018 study?
Or, is the tax amnesty purely meant to increase state revenues, improve the administrative system, and expand the tax base? If so, all these things should have been answered when the government implemented the 2018 sunset policy and 2016-2017 tax amnesty. Did Indonesia's tax ratio improve or was the revenue target reached annually? Unfortunately, the answer is no.
Given that experience, the government should have been able to make wiser conclusions regarding tax amnesty or any similar program. Forgiving the sins of taxes in the past by paying tribute to the country is not the best solution to answer the classic problems of Indonesian taxation.?
Keep in mind that starting in 2018 Indonesia is included in 108 countries and 78 jurisdictions involved in the exchange of tax information or Automatic Exchange of Information (AEoI). The government has the opportunity to optimize this international cooperation to uncover the hidden treasures of Indonesia's rich and of course follow it up by taxing—not forgiving.?
The AEoI program initiated by the OECD helped in revealing 1.6 million information of Indonesian citizens’ assets worth of 246.7 billion Euros or around IDR4,329 trillion. This number is bigger than the value of assets declared in the previous tax amnesty program, which reached IDR1,000 trillion. If all these assets are taxed, I believe that the amount will be bigger than the realization of the redemption money in the 2016-2017 tax amnesty, which amounted to IDR114.54 trillion.
Apart from the partner country and jurisdictions, the tax authorities are actually able to access information from financial institutions. Other data can also be obtained from agencies or institutions that have established information exchange cooperation, such as local governments and State-Owned Enterprises (SOEs).?
All of those things are supposed to make the government more optimistic in minimizing tax evasion or avoidance, without having to forgive tax evaders. Unless that's not the actual purpose.
Because, as always, when initiating the tax amnesty, the hype echoed by the government and their supporters is that tax amnesty will provide a big additional revenue and become a momentum for improving the tax system. They argue that, by opening the door of forgiveness, new tax bases will appear, taxpayers’ compliance will improve, and all these will be reflected in sustainable tax growth. The once-in-a-year Eid can’t even guarantee someone will not repeat their mistake, let alone tax amnesty. ?
More and more volumes of tax amnesty will only become a moral hazard and decrease the credibility of the government in the public’s eyes. As a result, it will lower the level of taxpayer’s compliance as it triggers a presumption that the guilty ones will surely be forgiven.?
The United State Internal Revenue Services analyst George Guttmann (1992) once conveyed an analogy comparing tax amnesty to fire used to control forest growth. Quite dangerous, but if it is used in the right dose, it can improve the tax system. The words “danger” and "dose" should be underlined from his statement.
It is a danger because, according to Guttmann, tax amnesty can make compliant taxpayers upset. Instead of increasing the compliance of tax evaders, the overusing of forgiveness can actually make taxpayers who have been obedient so far act the opposite.
Back to the analogy of fire, using it excessively will not put out a wildfire. It can burn everything instead. Or if we compare it to antibiotics, repeated tax amnesty will not cure the same disease. It can actually make the bacteria causing the disease to become immune. The point is, be careful with tax amnesty. Don't let #BoycottTax goes viral and resonates again. That is the real danger.?
**) A short version of the article was published in CNBCIndonesia.com, on 2 June 2021