Slow Progress on Tax Reform as Gov't, House Play Waiting Game: Analyst

The Ministry of Finance will release a new regulation this week to make sure tax amnesty participants are exempted from income tax when transferring ownership of their houses or land as part of the ministry's efforts to maintain taxpayers' trust, Minister Sri Mulyani Indrawati said on Wednesday (15/11). (Antara Photo/Yudhi Mahatma)

By : Tabita Diela | on 7:49 PM May 26, 2017
Category : Business, Economy

Jakarta. The slow start for Indonesia's tax reform agenda is a reflection of the long process ahead to improve the country's tax collection systems, an executive director of Center for Indonesia Taxation Analysis, or CITA, said.

The government began the tax reform process with the nine-month tax amnesty program that ended in March, where nearly one million taxpayers declared more than $367 billion of previously unreported assets.

Indonesia's tax base compliance is considerably low, according to the Organization for Economic Cooperation and Development (OECD). The multinational organization said, of Indonesia's 260 million citizens, only 27 million were registered taxpayers in 2014 and only 900,000 paid what they owed.

The next step to improve tax compliance should be the revision of General Taxation System, known as KUP, regulating many details on Indonesia's taxation system including definitions, procedures and sanctions.

Still, it has almost been two months since the government's record-breaking tax amnesty program ended but there is no apparent progress on the reform of taxation laws.

"The process should be quicker in order to make it the basis of Indonesia's new taxation system," Yustinus Prastowo of CITA told the Jakarta Globe on Friday (26/05).

Yustinus said revising KUP is only the beginning of tax reform in Indonesia. The process will be followed by revising Income Tax Law and Value-Added Tax Law revisions, by the Directorate General of Taxes.

"Indonesia has four core components to its tax reform agenda. There is regulation reform that includes revising laws and streamlining its derivative regulations. Then there is administrative-related reform, that includes IT improvement and cutting red tape. The third component is human resource improvement and the last is institutional transformation," he said.

According to the KUP revision academic paper, which contains the scientific concept, background, purpose and target of a bill, the revised KUP should be more easy to understand by both the taxpayers and officers.

Waiting Game

Hestu Yoga Saksama, the director of counseling, service and public relations at the Directorate General of Taxes, said the government had handed the bill to the House of Representatives in mid-2016.

"The government's position right now is to wait for an invitation from the House for a hearing," Hestu said "The Directorate General of Taxes has yet to receive the invitation from the House until now."

Two hearing sessions held by Commission XI of the House of Representatives — which oversees Ministry of Finance and other finance-related matters — regarding KUP Law revisions in April were canceled.

Misbakhun, a lawmaker from Commission XI, said a new schedule has been made but he needs to check with the House's secretariat office for further details.

Unlike Yustinus who thinks the law might not be passed this year, Misbakhun said he is "personally sure" that the law will be passed this year if the government shows an intention to build "political communication" with factions at the House.

Misbakhun, however, did not elaborate on what this meant.

Another lawmaker from Commission XI, Hendrawan Supratikno, also said the bill has yet to make any progress so far.

"The revision is [still in] the preliminary stages [between the lawmakers, government, academics, businesses]," he said.

Second-Best Policy

"If we look at the House's [number of] session periods left, it will be rather hard to pass this bill this year," Yustinus said."What the government can do is to settle on the second-best policy for now."

He said the government can jumpstart the reform with improvements within the tax office that don't need a change in law, such as simpler administration processes for taxpayers.

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