Jakarta. The administration of President Joko Widodo is preparing to issue a Presidential Instruction, known as an Inpres, to assure officials at the tax directorate general that they will not be criminalized by other government agencies, the finance minister has said.
“This Inpres is aimed to give legal certainty to tax officers, so that when they make collections, they wouldn’t be criminalized by other legal enforcers,” Finance Minister Bambang Brodjonegoro said, as quoted by Antara, late on Wednesday.
An Inpres is a non-legislative legal umbrella, which is a set of presidential instructions to concerned ministries and other government agencies.
Bambang said the Inpres, which is set to be released next week, aims to avoid friction between tax officers and other government agencies, particularly police and the Attorney General’s Office.
The minister said government agencies and officials must coordinate to respond to complaints from taxpayers, especially those under investigation by the tax office.
Sigit Priadi Pramudito, the finance ministry’s director general for taxes, was also quoted by Antara on Wednesday as saying that some offending taxpayers fight back when under scrutiny by the tax officers.
This is often done by reporting officers to police for a variety of allegations, including extortion, embezzling or acquiring documents illegally, he said.
He claimed that his officers will always “work with good intentions, in accordance with the law.”
Still, Sigit said taht even though the Inpres would offer some protection, it wouldn’t mean tax officers gain immunity from prosecution.
“There shouldn’t be any abuses [of power]. If there are delinquent officers and there is evidence for [them breaking the law], go ahead arrest them,” he said.
Local media last year reported a case involving seven tax officers from a West Sumatra office had been declared suspects by the police over allegations that the officers were illegally borrowing documents from relevant parties for investigative purposes.
The case involved property developer Niaga Guna Kencana in Jambi province.
The tax officers were investigating a case for the 2009 to 2012 period.
Could it backfire?
However, not all tax officials are pleased with the plan.
A mid-ranking official has said that the Inpres could backfire and it could, instead, encourage tax evaders to fight harder against charges.
“I personally disagree with the president’s plan, because it would make us look like we’re immune to the law and we’re not,” the tax officer, who spoke on condition of anonymity, said on Thursday.
He acknowledged that it is already is difficult enough to collect taxes, especially from companies, who are backed by “influential figures,” within the government or even legal enforcers.
“Sometimes there is intervention from other law enforcers when we start probing big companies that allegedly have tax problems.”
“The interventions are sometimes made directly and indirectly … Directly is when someone with strong influence makes a phone call to our office,” he said.
‘Current law sufficient’
However, the interview official said he believes the current tax law offers enough protection for tax officers.
He said that according to the Article 35A of General Taxation Provisions and Procedures Law (KUP), tax officers cannot be charged with criminal lawsuits when they are carrying out their job in good intent and in accordance with the tax law.
Tax officers, by law, are permitted to place tax evaders in remand until the tax debt is paid, a law enforcement tactic known by the Dutch term “gijzeling.”
Recently, the tax office has performed gijzeling with a number of executives, including an executive of a Jakarta-based foreign investment company and three executives from two companies in Surabaya, East Java, and Palembang, South Sumatra, according to local media reports.
Taxation targets, deficit concerns
The tax office is under pressure this year to meet the 2015 tax collection target, which has been set an ambitious 30 percent higher than 2014 receipts.
In the revised 2015 budget, the government seeks to book a total revenue of Rp 1,762 trillion ($134 billion), of which tax revenue would contribute up to 85 percent of the total, or around Rp 1,489 trillion.
“These targets are very high from a historical perspective,” Gundy Cahyadi, a Singapore-based economist with DBS Group Research, said last month.
“Total tax revenue growth averaged 8 percent in 2013-14, about half the 15.6 percent average pace in 2008-12,” the economist added.
“The last time tax revenue growth surpassed 30 percent was in 2008.”
“But that was when commodity prices were significantly higher than today,” he said.
Gundy said other challenges for such ambitious tax collection include the slow economic growth projected for this year, especially since GDP growth is running at around 5 percent lately.
Options to raise corporate and income tax rates remain limited, given the further drag in corporate performance this year.
Gundy predicted a shortfall in tax revenue is very likely and it is possible the government will breach the legal 3 percent limit in the budget deficit.
Bambang keeps the faith
Bambang, the finance minister, responded to the budgetary concerns on Thursday.
Joko’s administration has set a budget deficit target at 1.9 percent this year, a scenario which banks on projections that total revenue will increase by 14 percent and tax collection by 30 percent — which not only Gundy, but even the World Bank doubts will be achievable.
On the sidelines of a discussion at the 2015 Institute of International Finance (IIF) Asia Summit, Bambang said the government would not allow this year’s budget to widen to more than 2.2 percent of the GDP.
“The most important thing is to make sure the budget is safe.”
“Even if the deficit has to widen, we will keep the size at no more than last year’s deficit of 2.2 percent,” the minister told reporters at the conference.
As of April, tax collection, excluding excise and export-import duty, has only reached 24 percent of the target for 2015.
Tax revenue reached 310.1 trillion rupiah ($23.69 billion) in the first four months, down 1 percent from the same period last year.
If the target is not met, Bambang said the government had “some measures in place to deal with the worst-case scenario” — but these do not include cutting infrastructure and public spending this early in the year.
Additional reporting from Reuters
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