Up to next April is the period of 2018 Annual Tax Return submission both for Individual and Corporate Taxpayers. How is the trend in the Tax Return submission compliance so far and what is the strategy implemented by Directorate General of Taxes (DGT) to encourage the Tax Return submission? The following is the explanation from Director of Potential, Compliance, and Revenue of Directorate General of Taxes, Yon Arsal when MUC Tax Guide visited his office recently:
How is the level of tax compliance recently?
Basically, if we talk about compliance, theoretically there are four points i.e. registration, reporting, payment compliance, and correct reporting. So, the thing we have been bringing out so far is related to reporting compliance. The registration compliance is related to the extensification.
We estimate the compliance of Tax Return reporting by considering the number of registered Taxpayers, how many Taxpayers are obliged to report their Tax Returns? It is because not all the registered Taxpayers are obliged to report it. Some are with the status as wife, for companies some are with status as branch, JO or joint operation which is not obliged to file the Tax Return. There are also treasurers, Taxpayers whose incomes are below Non-taxable Income and Taxpayers whose status is non-effective. They are included as Taxpayers who are not obliged to file the Tax Return.
How far is the compliance of Tax Return submission until now?
For 2018, from the total registered Taxpayers at the beginning of the year, per 1 January 2018, there were 39 million Taxpayers. Those who are obliged to file their Tax Returns were 16.5 million. Then, the target of compliance that is calculated from the number of those who are Tax Return-reporting mandatory is determined by 80%, which is approximately 14 million. The realization is 12.5 million so that the accomplishment is around 71%.
The number slightly declines compared to 2017, but if we elaborate why does the decrease occur? One of them is because the number of non-employee Individual Taxpayers and Corporate Taxpayers is rising or growing. However, decline takes place in the number of employee-Taxpayers.
Why does the submission of Tax Return of Taxpayer of employee decrease?
Admittedly in the past two years there was an increase in the limit of Non-taxable Income. Through this increase, the Taxpayers (having income) below Non-taxable Income do not report the Tax Returns, (which) automatically affects most of 1770 SS Tax Return. For instance, now the limit of Non-taxable Income for Individual Taxpayer is IDR54 million a year, while for those who fill this SS, the maximum income in a year is IDR60 million. The Tax Returns received currently are mostly 1770 SS, which are from employees, retirees, etc. Well, basically with the increase in Non-taxable Income, these people are automatically no longer obliged to file the Tax Return. It is what really occurs.
Why is the number of those who are obliged to report their Tax Returns not reduced so that it is not unequal to the target?
Since we don’t fully receive the information about how much their incomes are, we will know it after they submit their Tax Returns. For example, we now make an adjustment to the year 2019, we will check it from last year how many of them still report their Tax Returns but (having income) below Non-taxable Income, we won’t count them since it is more likely that this year they will not file their Tax Returns again. But the process takes time. We can just tell them that they are no longer required to submit the Tax Returns, but who knows that they earn other incomes they report voluntarily.
It is also not that it decreases every year as in average the number of Taxpayers each year also increases and we also have other basis such as data, (in which) there are certain data we have that may show some people who declare (having income) below Non-taxable Income but proven actually (having income) not below Non-taxable Income because of other incomes, etc.
We continuously combine this data. If in a year the average increase of the number of Taxpayers is between 3 million and 3.5 million, the increase in the number of Tax Return reporting-mandatory Taxpayers is not automatically the same. On that base we make adjustments. The point is that we eliminate those who are no longer obliged to do it, while the newly reporting-mandatory Taxpayers indeed become an add factor.
How about the compliance target this year?
Our target this year is 85%. Why 85%? It is more because now there is an international standard in the EoI (Exchange of Information) context. We are being reviewed by EoI standard in which the standard for OECD countries is 85% for the total incoming Tax Returns, 95% is for the corporates. We were reviewed by EoI in the last two years.
What kind of efforts that we put in to achieve the target?
We’ll surely use persuasive approach. Therefore, there is always massive campaign in March especially for individuals since most of registered Tax Return-reporting mandatory Taxpayers are individuals, so it is how we gather them. And, the mechanisms are various.
First, it is through an open campaign. The approach for open campaign is only persuasive way, we put all banners everywhere, advertisement on television, radio, and print media. Second, it is the approach via the employers as most (Individual Taxpayers) are employees. The withholders are in the companies. We contact the companies so that they immediately issue the withholding slip, thus their employees can perform e-filing.
In special case, we are proactive to visit the offices where the employees are difficult to go outside, we assist them. In fact, it is basically easy to fill in the Tax Return, yet it is also undeniable that sometimes confirmation and consultation are necessary. Thus, our officers are ready everywhere. So, other than open campaign, we also help them one on one to companies especially those with many employees including governmental treasurers.
Third, we make reminders. We remind those who have submitted Tax Return thus there was email blast yesterday and it was not random. The content is a reminder as well. Our point to convey is that you have an obligation to report the Tax Return. If needing our assistance, we will help you. And, if possible, submit it before 16th, even though the due date is 31st.
Why should we report it earlier?
Indonesians are most likely to wait, it’ll pile up at the end of the month. But we never know the risks. There may be network problems. The network is not only DGT’s (Directorate General of Taxes), the Taxpayer’s internet connection may also be the cause. To anticipate complains, we suggest an early reporting, if you want.
So, in order to promote the Tax Return, we take the approach, open and massive, by targeting certain employers, the Taxpayers who reported their Tax Returns last year thus for this year they must have the same obligation, and also the Taxpayers whose data we have and who are obliged to report their Tax Returns. The point is the faster, the more convenient.
If the deadline has been passed, what will DGT do?
There are several factors causing the Taxpayers not report their Tax Returns. What’s legal is specifically related to the time extension as the audit of financial report has not been done, etc. If the due date has been exceeded, we will immediately analyze it since we have the list of names. From the total 16.5 million, there are names and the Tax ID Numbers. After April, we will match the data, both Individual and Corporate Taxpayers, from the list who have submitted it and who haven’t.
Then, we report it to the unit, regional offices, Tax Offices, to be checked in their lists. For instance, a regional office has targeted 100 Taxpayers reporting their Tax Returns, but why it is only 60. They should check how about the remaining 40? Indeed, this submission can still be made until the end of the year even though they are subject to sanction and it is relatively still quite many actually and with the data that is more qualified, we are more confident to encourage the Taxpayers to report their Tax Returns.
For those who have not reported their Tax Returns, in general what is the reason?
Sometimes, related to this Tax Return reporting, if we try to look deeper at why they do not report their Tax Returns, it is that because many people are not aware of their tax obligation. Therefore, we emphasize the persuasive, the outreach, since there are many of them who do not understand it, especially employees, that (they think) I have been taxed, why should I report it, I do not work anywhere else.
In fact, there are two obligations, namely payment and reporting obligation. There are many cases discovered that many people do not really know that they must report their Tax Returns.
Our task in this case is providing an outreach program by giving education that when you have been taxed, you still have to report it, thus we cannot judge that the number of Tax Return submissions that reaches 70% means 30% of tax evader, it doesn’t mean that way. It is not always like that. There may be some of them in it, but not entirely. In terms of Tax Return, it is more about unawareness, so that education becomes an essential part.
For those who have known about it but saying they don’t, we also remind them. That’s why we send the email blast to remind them. If they still do not conduct reporting, we will wait after the due date of Tax Return. Later, there will be clarification process to know why they do not report it.