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

Thoughts on Taxation

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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

Post-tax amnesty era:

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Overview:

• Context
• Fiscal dilemma
• Long-term strategies
• Short-term strategies
• Conclusion

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A Janus-faced success?

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)

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion

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The Indonesian ‘tax ratio’ is lower than those of most low income countries

36 26,8 16,5 13,9 12,8

5 10 15 20 25 30 35 40

High income countries Upper middle- income countries Lower middle- income countries Low-income countries Indonesia

Tax ratio (%) GNI per-capita category

Tax ratio by per-capita GNI category, 19912006

Source: Adapted from (IMF 2011, pp. 60-62)

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion

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Source: www.kemenkeu.go.id/apbn2017

11,9 11,9 11,4 10,7 10,3 10,9 9,5 10 10,5 11 11,5 12 12,5 2012 2013 2014 2015 2016 (APBNP) 2017 (APBN) Tax ratio (dalam arti sempit)

Declining Indonesian tax ratios (%)

’12¾ tipping point’ phenomenon?

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion

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Principle dilemmas in establishing fiscal soundness

Revenues Expenditures Deficit

Fiscal politics

Increasing (in terms of social and physical infrastructure) Increasing (3% rule) Declining (in terms of tax ratio-to-GDP) Striking the balance

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion

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Taxes are primary source of government revenue

Yet, boosting tax revenue in Indonesia seemed very hard.

Source: www.kemenkeu.go.id/apbn2017

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion

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Justification and transition for fairness and tougher measures?

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion

Tax amnesty

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Influences on tax compliance outcomes

So, a fresh start or a vicious circle?

Source: OECD (2014, p. 15)

Revenue body’s actions

Audit Education Guidance Processes

External factors

Economy Social shift Public perceptions International changes Media

Tax compliance

• utcomes

Revenue maximisation Taxpayers comply voluntarily Integrity of and confidence in tax administration of the tax system

Internal capabilities Operating context

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion

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Initial step: Tax reform

• KONDISI SEKARANG
• 1. Institusi perpajakan perlu

pembenahan: organisasi dan SDM; sistem informasi, basis data, dan proses bisnis; dan regulasi.

• 2. Sinergi antar lembaga perlu

dioptimalkan.

• 3. Kepatuhan WP rendah.
• 4. TAX RATIO = 11%
• REFORMASI
• KONDISI DIHARAPKAN
• 1. Institusi perpajakan yg kuat,

kredibel, akuntabel dengan proses bisnis yg efektif dan efisien untuk

• ptimalisasi penerimaan negara.
• 2. Sinergi antar lembaga optimal
• 3. Kepatuhan WP yang tinggi
• 4. TAX RATIO = 14%

FOKUS REFORMASI Source: KMK-360/KMK.03/2017

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion

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Assessing internal capabilities

Source: www.tadat.org

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion

Performance Outcome Areas

Integrity of the registered taxpayer base Effective risk management Support given to taxpayers to help them comply On-time filing

• f

declarations On-time payment of taxes Accuracy of information reported in tax declarations Adequacy of dispute resolution processes Efficient revenue management Accountability and transparency

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Wagon wheel - TADAT

Source: www.tadat.org

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion

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Good practices in relation to effective risk management according to TADAT:

Studies of taxpayer behavior and attitudes towards paying taxes

A B+ B C+ C D+ D

POA1

Integrity of the Registered

POA2

Effective Risk Management

POA3

Supporting Voluntary Compliance

POA4

Timely Filing of Tax Declaration s

POA5

Timely Payment

• f Taxes

POA6

Accurate Reporting in Declarations

POA7

Effective Tax Dispute Resolution

POA8

Efficient Revenue Management

POA9

Accountablity and Transparency

Source: KMK-360/KMK.03/2017

TADAT Performance Assessment: Indonesia (self-assessed)

As of 31 Dec 2016

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion

75% (3 out of 4) of

indicators are scored D

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Source: OECD (2015)

Further note:

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion

Indonesian tax authority has the least delegated authority that can be exercised without requiring external approvals among OECD, advanced, and emerging economies (56 countries).

Countries Delegated authority %

Australia 9 100% US 9 100% Singapore 9 100% Malaysia 9 100% India 8 100% Thailand 6 67% Indonesia 3 33%  To make tax rulings  To remit penalties/interest  To design internal structure  To re-allocate budget as deemed appropriate  To fix levels and mix of staff  To set service standards  To influence staff recruitment criteria  To hire and dismiss staff  To negotiate pay levels

Delegated authority — Indonesia

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The ‘intention-action divide’ phenomenon (World Bank, 2015)

Source: McKerchar (2003, p. 188)

Next step: Understanding tax compliance, undertaking environmental scanning

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion

Compliance behaviour types

arifinrosid.com Monitor performance against plan Evaluate compliance

• utcomes:

 Registration Filling Reporting Payment Analyse compliance behaviour (causes, options for treatment) Determine treatment strategies Plan and implement strategies Identify risks Assess and prioritise risks

Operating context

Compliance risk management

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion

Source: OECD (2010, p. 9).

CRM has now a stronger focus on understanding and influencing taxpayer behaviour (Alink and Kommer, 2016)

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Have decided not to comply Factors influencing taxpayer behaviour Attitude to compliance Don't want to comply, but will if we pay attention Try to but don't always succeed Willing to do the right thing Use the full force

• f the law

Compliance strategy Deter by detection Assist to comply Make it easy Taxpayer Business Industry Sociological Economic Psychological Strategies aim to create pressure down

Source: modified from OECD (2004, p. 41)

Recognising a spectrum of taxpayers attitude to compliance

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion

Operating context

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Source: Langham et al. (2012, p. 394).

How to identify the cause of compliance issues?

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion

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Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion

First thing first: Establishing and undertaking segmented-enforcement projects seem crucial

• Data quality issues?
• A proxy for ‘the disengaged’ and the ‘resisters’?

Information reporting regime (e.g. ILAP, Law No 9 2017)

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TAX Probability neglect Cluster A Cluster B Cluster C Cluster D Cluster E Cluster F

>20% chance of being audited < 1% chance of being audited

Assumptions

• 600,000 tax

returns

• 600 auditors
• 10 audits/year
• Total audits per

year = 6,000

• Prob. of being

audited = 1% (6,000/600,000) Cluster A

• 30,000 tax

returns

• 300 auditors
• 20 audits/year
• Total audits per

year = 6,000

• Prob. of being

audited = 20% (6,000/30,000) Other clusters

• 570,000 tax

returns

• 300 auditors
• 10 audits/year
• Total audits per

year = 3,000

• Prob. of being

audited = 0.5% (3,000/570,000) Uncertainty aversion Availability bias

Special audit projects

Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion

Segmented-enforcement projects — brief illustration

Increasing penalties may not have a noticeable effect on compliance, unless the probability of detection is increased significantly (Gneezy and Rustichini, 2000).

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TAX Context Fiscal dilemma Long-term strategies Short-term strategies Conclusion

Caution: Coercive audit has a backfiring effect!

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)

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Introduction Empirical settings Findings Policy implications Conclusion

Conclusion

• Tax amnesty has provided transition and justification

for improving taxpayers’ compliance.

• Long- and short-term strategies are both needed to

achieve this goal.

• Indonesian tax authority needs to improve its

internal capabilities as well as understand its

• perating context. Therefore, internal and

environmental scanning are both crucial.

• ‘Segmented-enforcement’ approach needs to be

considered in the context of the wider vision of achieving long terms goals, but with caution.

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Thank you

DISCLAIMER: The opinions and views expressed in this presentation are those of the presenter and do not necessarily reflect the official position or policy of the institution where the author serves