Note: I submitted this article to an English daily newspaper based in Jakarta last June. The article was about how dare president candidates propose taxation issue as their campaign material. The article was rejected to be published.
On Sunday, June 1st, General Election Commission (KPU) officially announced candidates of president and vice president: Prabowo Subianto-Hatta Rajasa and Joko Widodo-Jusuf Kalla. In the next phase, during campaign period, public will be waiting for their programs and plans.
One of the most significant topics is taxation issue. Why? First of all, tax is backbone of the country’s economy. Tax revenue contributes 69,5% as source of the state’s expenditure. Secondly, collecting tax means an effort which needs extra attention to obtain enormous fund. Since last year, annually targeted tax revenue has surpassed a quadrillion rupiah. This year –according to Law Number 23 of 2013 Concerning State’s Revenue and Expenditure Budget– government is mandated to achieve Rp1,28 quadrillion. Such state revenue will be utilized for vital sectors, for instance, education budget (Rp368,9 trillion), fuel subsidy (Rp210,74 trillion), electricity subsidy (Rp71,36 trillion), fertilizer subsidy (21,05 trillion), food subsidy (Rp18,82 trillion), mass rapid transit project (Rp2,88 trillion), and public service obligation (Rp2,2 trillion).
Since direct election era began a decade ago, there has not been Indonesian president candidate who delivered program regarding tax yet. It will be the first time in our history if both candidates highlight taxation as one of their campaign contents; and also it will be more interesting if the candidates breakdown their taxation program in debate session.
There are several subjects related to tax which can be discussed. First of all, all candidates have to expose their tax return transparently. We can learn from, for example, American president candidacy for this case. President Barack Obama as well as his colleague Joe Biden openly release their tax returns on their website (http://l.barackobama.com/tax-returns/ lastly accessed on June 4th).
It is believed that disclosing their tax returns was one of crucial keys for Obama-Biden’s victory in presidential election in 2008 and 2012. Of course, tax officers or General Directorate of Taxes are prohibited to publish every single taxpayer’s data due to professional confidentiality. However, the president candidates by themselves can exhibit their tax reports voluntarily. Such action sends strong message that president candidates are role models in fulfilling tax obligation –one of citizens’ primary obligations which are mentioned in constitution– properly. It is relevant because tax obedience in our country is still weak. There are only 55,95% of total active taxpayers who file their tax returns regularly.
Next topic is that how to maximize tax revenue potential. Even though tax revenue realization grows every year, it cannot meet the target. In last five fiscal years –from 2009 to 2013– government have only realized tax revenue from 94,31% to 97,26% of its target. Only in 2008, when the “sunset policy” (tax administrative sanction abolition) was implemented, government successfully surpassed the target by collecting 106% tax revenue.
An important discourse which they can propose is increasing personal income tax contribution. In State Budget fiscal year 2014, personal income tax targeted is “only” Rp7,36 trillion or 0,57% to total tax revenue. If we include income tax of employees salaries (Income Tax Article 21) which is Rp116,82 trillion, both contribution is still below 10% –exactly, 9,7%. On the other hand, corporate income tax contributes Rp174,76 trillion or 13,65%. This fact contradicts the proportion of taxpayers. There are more than 23 million registered individual taxpayers and approximately 2,2 million registered corporate tax payers. In other words, comparison between individual and corporate taxpayers is 10:1.
Corporate income tax revenue in Indonesia is still dominant, whereas in developed countries, personal income tax contributes more than corporate tax.
From 2007 to 2011 in Organisation for Economic Co-operation and Development (OECD) countries, personal income tax contributed 24,4% and corporate income tax supplied 9,2% towards total tax revenue (http://www.oecd.org/ctp/tax-policy/revenue-statistics-tax-structures.htm lastly accessed on June 5th). In order to achieve tax revenue target, new government should be brave enough to establish innovations in taxing more high-wealth individuals.
Lastly, new government should implement tax authority institutional reform. Previously, one of candidates proposed an idea that General Directorate of Taxes should be separated from Ministry of Finance. Indeed, in last 20 years, there has been an interesting trend of tax authority body separation from Ministry of Finance in various countries (Darussalam et al., 2013). An independent state revenue body obtains more authority in applying administrative fuctions and services.
Basically, there are two models of tax authority organization: traditional model or under Ministry of Finance (France, Indonesia, etc) and semi-autonomous body (Hong Kong, USA, etc). Both of them have advantages and drawbacks. Whether the General Directorate of Taxes is still under Ministry of Finance or it will be a separated body, the organization should be more autonomous, accountable, flexible, and independent in implementing its budget, recruiting employees, and conducting code of ethic and integrity.
All in all, we need nation leaders who pay a serious attention to taxation. Hopefully, future president can answer this public’s expectation. It is necessary to examine their program fairly and thoroughly before deciding to choose one of them.