Although tinged with controversy and tough debate, finally the plenary session of the House of Representatives of the Republic of Indonesia (DPR-RI) passed the Draft Tax Amnesty Law into the Tax Amnesty Law. On many occasions, the Minister of Finance assured that Tax Amnesty is a necessity that must be taken by the government amid global economic instability and the drag of state revenue sources to finance the government’s ambitious projects. Tax amnesty became the easiest option for the government after it could no longer “play” the re-allocation of fuel oil subsidies.
The government is hoping for fresh funds from paying ransom rates and repatriation to patch the budget deficit. The government seems to forget that there are many reasons why rich people are more likely to park money in other countries than in their own country. Ironically, the Government argues that Tax Amnesty is a momentum especially after the disclosure of various tax evasion scandals, money laundering, and corruption in the Panama Papers.
Is our fiscal condition really a “red light”? We, the Fair Tax Forum (FPB) believe not! The budget deficit is because the government (bureaucracy) is too wasteful and does not have an effective planning-budgeting system. That is, if the budget efficiency and effectiveness can be done as a whole in the Ministries / Institutions and local governments, the deficit will be very low.
Is Tax Amnesty the only way to increase state revenue? We believe not! There are many ways: close the leakage of non-tax state revenue (PNBP) which amounts to tens of trillions, close the leakage of customs and excise, tax receivables that are also tens of trillions, optimizing the ability of the Director-General of Taxes in collecting taxes and others.
Tax amnesty shows that the government and the DPR are attacked by short-term pragmatism, panic attacks, and at the expense of more fundamental long-term interests, such as tax and fiscal reform, respect for the rule of law principle, equality of law, and social justice. Even though tax crime cases are already open (Panama Papers, Lux Leaks, and others). Instead of investigating the Indonesian elite involved, the government has accelerated Tax Amnesty.
The government actually turned around and hoped for the generosity of tax evaders to bring back their homecoming money to Indonesia through ransom payment and repatriation. The government favored super-rich citizens who were not tax-compliant compared to middle-class citizens (salarians) who obeyed paying taxes.
The Tax Amnesty Bill has become the Tax Amnesty Law, rice has become porridge. Will this policy be effective? We sure do not! Moreover, we are dealing with conditions:
First, the government has not or has not yet developed domestic financial system innovations. National banking has a fairly strong dominance of the domestic financial market, but it cannot provide many choices and incentives to attract foreign funds to enter the financial industry. Investment in the real sector is still minimal and the scheme for the informal-underground economy is still vague.
Second, there is a very high potential for economic instability. This is mainly related to the composition of ownership of Government Securities (SUN) and SUKUK which are still dominated by foreign investors, even with short tenures. The repatriation fund lock-up period in the Tax Amnesty Law for three years is quite short and capital in-out-flow will occur quickly. This has the potential to shock the Indonesian monetary and fiscal conditions.
Third, there has not been an improvement in the national legal system, especially in the field of taxation. The government and parliament, which should prioritize the revision of the Draft Bill on General Taxation (KUP) and the Non-Tax State Revenue Bill (PNBP) that have already entered the 2016 National Legislation Program, are rather “reluctant” to rush the discussion. The KUP Law, the PNBP Law, the VAT Act, the Income Tax Law, and the tax court must be immediately revised so that the tax loop-hole policy becomes narrower and narrows the space for the practice of tax availability and tax evasion.
Fourth, Tax Amnesty shows that the state is defeated and subject to tax evaders. If many countries make the momentum of the Panama Paper, Automatic Exchange of Information (AEoI), and transparency of the company’s main controllers (transparency beneficial ownership) as a political and law enforcement movement, Indonesia would instead begin the forgiveness movement.
The four conditions above are key for Indonesia, if not done immediately in the midst of Tax Amnesty, it will further plunge the Indonesian taxation system into a chaotic and increasingly counter-productive direction of the tax reform agenda. So, it is not the blessing that is obtained, but the disaster that befalls.
On this matter, the Fair Tax Forum (FPB) asked for things:
1. Regulation of the Minister of Finance (PMK) which regulates the implementation of Tax Amnesty is formulated openly and involves wider stakeholders. Tax amnesty must be inclusive, not only accessible to the super-rich but also the lower-middle class.
2. There is an “ear-marking” of income from Tax Amnesty allocated to support the real sector (MSMEs and other people’s businesses), basic infrastructure development, and increased social spending. So, it can be an instrument of concrete economic redistribution and reduce inequality between groups and between regions.
3. Tax forgiveness must be a tool that can increase the courage of the government to force super-rich and medium taxpayers to pay taxes. Tax authorities must be really active in “chasing” taxpayers to various parts of the world.
4. Supervision of the implementation of Tax Amnesty must be carried out and involve the parties. The government must form a “National Tax Amnesty Oversight Team” consisting of representatives of community organizations, practitioners, community leaders, and other stakeholders. Thus closing the opportunity for new corruption and “playing between actors” between tax officials and taxpayers.
If the above is not fulfilled by the government-parliament within one month, then the Fair Tax Forum (FPB) will continue to call for rejection of the Tax Amnesty Act and will conduct a judicial review to the Constitutional Court!
Contact Person:
PRAKARSA Society: Ah. Maftuchan (amaftuchan@theprakarsa.org)
Transparency International Indonesia: Wahyudi Thohary (wahyudi@ti.or.id)
Publish What You Pay Indonesia: Maryati Abdullah (maryati.mrt@gmail.com)
INFID: Khoirun Nikmah (nikmah@infid.org)