”Quo Vadis” Our Taxation
A warm meeting between President-elect Joko Widodo and Prabowo Subianto has reduced political tension and raised hopes for stability.
It is a very reasonable expectation in the midst of lingering indecision and uncertainty. The unclear development of political uncertainty has the potential to eliminate the momentum of improvement because many policies rely on stability, including the taxation sector.
After the promising tax amnesty, we are even tested by being confronted to the challenges of continuing improvement and renewal. Global dynamics also makes us unsteady and lose guides. A clear and strong vision and ideology are important prerequisites for improving the fiscal sector.
Challenging situation
The majority agreed that the tax amnesty applied in 2016-2017 led to good results. Apart from the penalty payment statistics, fund repatriation, and asset declarations, an important aspect of the tax amnesty program was the reopening of opportunities to carry out tax reforms after the stagnation and deadlock we faced.
As has widely been known, after the end of the blessing of commodity prices, the performance of tax revenues declined again. In fact, the need for state revenues was getting bigger, especially for the new government of Joko “Jokowi” Widodo-Jusuf Kalla that wanted to realize their promises. The 2015 tax revenue target was boosted up to 30 percent amid the slowing global and domestic economy. As a result, we faced a dilemma, whichever had to come first, pursuing the taxpayers to increase payments or pour stimulus so that the economy moved again.
The tax amnesty program eventually became the culmination of a policy that would determine the direction of taxation policy in the future. The government chose to offer forgiveness for tax offences in the past with full awareness that the government also contributed to the existing condition, accompanied by the hope that this facility would bring a new era characterized by transparency and mutual trust. The commitment when the House of Representatives (DPR) approved the tax amnesty was straightforward, that the amnesty program was the opening key for tax reform, which was marked by the discussion of the Bill of the General Provisions and Procedure on Taxation (KUP) and Indonesia\'s participation in the automatic exchange of information (AEoI) initiative.
Even though the Finance Ministry launched the Tax Reform Program in December 2016, the reform was not adequately guided by a bright vision and strong political support. The reason was when the amnesty began, we fell into euphoria and neglected to guard the momentum by preparing a long-term binding roadmap.
Now we face the worrying symptom of tax early aging, namely the stagnation of positive trends after tax amnesty as a result of expanding the tax base, increasing awareness, and comprehensive renewal of the Indonesian tax system. Even though the Finance Ministry is trying its best, yet the domination of the
status quo mentality is difficult to avoid. This is reflected in the performance of tax revenues this year which is quite alarming. Post-good growth in 2018 due to improved commodity prices and increased tax compliance, we experience very low growth in 2019 in almost all dominant sectors and types of taxes.
If so, what are the fundamental problems of our taxation system and what solutions must be taken?
The remaining hope after the tax amnesty seems to have left no trace and instead it has led to nervousness. If in 2018 we managed to record 16 percent growth, in the first semester of 2019 we could only grow 3.75 percent. Until the end of June 2019, the realization of new tax receipts was 38.25 percent or Rp 603.34 trillion from the target of Rp 1,572.5 trillion. The processing industry which contributed 29.3 percent of total revenues grew negatively by 2.6 percent, the trade sector which contributed 20.8 percent only grew 2.5 percent. Even, all types of taxes grew below the 2018 growth of 16 percent, respectively Article 21 Income Tax (14.93 percent), Corporate Income Tax (PPh) (3.4 percent), import taxes (minus 1.05 percent), and domestic VAT (minus 2.9 percent). Our tax ratio has also not moved convincingly, staying in the range of 10-11 percent. If so, what are the fundamental problems of our taxation system and what solutions must be taken?
Caring for emergencies
It is undeniable that one of the factors causing the vulnerability of our taxation system is the unhealthy political practice. Political instability and sensitivity to tax issues forces the government to be too careful in enforcing the law. In reality, law enforcement is a prerequisite for a responsible self-assessment system and the establishment of an authoritative tax system. Every law enforcement effort, no matter how moderate, must be measured under the political armpit. Excessive worry on political commotion, despite finding justifying reasons, makes our tax authorities sluggish like toothless tigers. This can be seen in several policies and regulations that frequently appear suddenly and disappear in an instant.
Frankly speaking, the government has failed to take advantage of the hegemonic potential of taxes to gain public support through articulation of law enforcement that is measurable, fair and objective.
The next factor is the pulling of tax incentive needs. In a sluggish economy which needs stimulus, optimizing the role of taxes as a policy instrument finds its relevance and urgency. Throughout the Jokowi-JK administration, various tax incentives have been given, even seem to be too superfluous and too generous, starting from decreasing revaluation rates for fixed assets, eliminating tax sanctions, increasing non-taxable income (PTKP), decreasing MSME tax rates, and its peak is the tax amnesty.
It does not only stop there, the scope of the tax holiday and tax allowance continues to be expanded to make it more attractive to investors. The latest is a super deductible tax for vocational education and research. Quite certainly this set of incentive policies is not wrong, even very much needed. The thing that gets less attention is to measure the accuracy of shots, effectiveness, efficacy, and trade-offs in the form of multiplier effects on the economy and taxation. It turns out that the many tax policies, regulations, and practices are still missing from the scope of incentives, such as the asymmetry of central-regional fiscal policies, the practice of unprofessional local tax collection, with the regional tax rates that are not uniform and frequently too burdensome to the business world, and in turn become a zero sum game.
Almost every year we only focus on the realization of the revenue target figures and forget the compliance roadmap that is more substantial.
The subordination of tax authority on political dynamics, including the speed of providing incentives compared to the expansion of the tax base and improvement of the capacity to collect taxes, leads us to recognize the third factor, namely the power of anticipation. Almost every year we only focus on the realization of the revenue target figures and forget the compliance roadmap that is more substantial.
Tax authorities are always required to perform well, but the space to move is increasingly partitioned and less given a more autonomous articulation space. Unfortunately, weak power creates many influential actors of interest and opens access to unequal power. Political support from the elite and oligarchs also often creates awkwardness in the field. No doubt the tax is an estuary of various very sexy interests to be contested. As a consequence, the deliberative process of policy formulation has not been completed due to interruptions and fait accompli. The reform project that should create a large, rigorous design and a clear roadmap, even have to deal with interventions that are often beyond the common sense of taxation theory and best practice.
Borrowing the term of an Italian political philosopher, Giorgio Agamben (Agus Sudibyo: 2019), democracy that should bring about normality is precisely controlled by emergency, even perpetuating it. Recent examples: the insistence that the PPh tariff be immediately lowered for the sake of competition with other countries, even though literature and history record supply-side economics and the argument that cutting tax rates will stimulate investment and increase the tax revenues, is not strong enough (Monica Prasad: 2018). The tax rates, which are only prima facie symptoms, become important needs, even though there are actually more important and urgent basic matters to be resolved. Again, in the name of emergency, the interruption of this policy takes its toll, namely the revision of the Law on KUP, which should be a new guide, vision and style of taxation.
Getting out of deadlock
If so, is the tax reform project in deadlock? Of course there is no need for used to be affected by the current of pessimism even though we still have to measure carefully the opportunity to get out of the trap of the status quo. We must maintain the ideal of tax as the pulse and determinant of the nation\'s life as initiated by the founding fathers of the nation, with the condition that they should immediately awake from the consciousness on the pragmatism-emergency. If not, the setback bell will soon resonate and this nation will lose one of the most valuable joints of mutual cooperation.
The second period of Jokowi\'s administration must really begin by making a fundamental evaluation, ideological reorientation, strategy rejuvenation, and making a distance from all interest groups in order to get clarity. We should not fall on the curse of developing countries, as reminded three decades ago by Milka Casanegra de Jantscher, "In developing countries, tax administration is tax policy".
The nature of tax is to legally and legitimately take a part of the wealth of rich groups to redistribute to disadvantaged groups.
The big problem of tax reform is not technocracy or technical administration, but the absence of big political imaginations and visions - not in a pragmatic-transactional sense - that embrace ethical principles such as justice, equality, fair redistribution, and accountability. The nature of tax is to legally and legitimately take a part of the wealth of rich groups to redistribute to disadvantaged groups.
This is where the legitimacy of tax collection finds its moral basis, namely "who can afford to pay higher taxes" (Thomas Aquinas), tax is a matter of "knowing who owns what" (Thomas Piketty), and only allows inequality if it benefits the weakest ( John Rawls). Therefore, a fair and legal-based system of taxation is the goal of reform and all energy is directed towards overall improvement.
To be straightforward, together with elected members of the DPR the design of a visionary Law on KUP needs to be immediately completed so that a solid foundation and new architecture can be immediately recognized and used as guidelines. This is also a way to tame rampant emergency jargon.
The key is decisive signals and symbolic actions that are clearly siding with compliance, fair and equal treatment, and clearly and decisively sorting out the taxpayers of the poor and wealthy classes.
As a derivative, the revision of the Law on PPh and the Law on VAT does not need to be forced and hastily resolved with the risk of being completed in reckless way. We are not chasing anything but being chased by our own shadow which is too agitated to catch the wind of change until it loses calmness. We have been on the right track when taking a risky tax amnesty policy, committed to promoting transparency, and carrying out various administrative improvements. This social capital is the one that must be continuously nurtured so that the trees of mutual trust are increasingly shady and fruitful. The key is decisive signals and symbolic actions that are clearly siding with compliance, fair and equal treatment, and clearly and decisively sorting out the taxpayers of the poor and wealthy classes.
Finally, all political processes that are responsible and serve the public interest can only be realized if the deficit of normative thinking is immediately overcome. Tax is an instrument that can function as a link (nexus) and leverage, namely linking various interests and leverage social changes. Now is the right time to take a break and have existential contemplation, weighing the objectives of tax reform. If it is for the benefit of the nation and towards social justice, then there is no other way except to carry out the remembrance of the brilliant discourse of the founding fathers, 14 July 1945.
We miss Bung Karno\'s eagle eyes, Bung Hatta\'s persistence and consistency, and Radjiman\'s cold hands. The agenda is to complete the Single Identity Number project, rearrange the authoritative and accountable tax institutions, clear taxation policies, fair and safe regulations, transparent taxation systems, simple procedures, and high compliance. Do not let us stagger in the vortex of the ideological battle of the world without a strong anchor principle, so that we forget the warning of Steve A Bank, that if in the past century taxes were swords, now taxes are shields, which will fortify the future. If so, what inheritance do we want to give?
Yustinus Prastowo, Executive Director of the Center for Indonesia Taxation Analysis (CITA) and Alumnus of Driyarkara Philosophy School of Higher Learning (STF)