Building Tax Patriotism

Photo by Slamet Rianto, text by Yos W Hadi (Yos Wiyoso Hadi)

By Wiyoso Hadi, Employee of the Directorate General of Taxes

"The art of war is of vital importance to the State. It is a matter of life and death, a road either to safety or to ruin. Hence it is a subject of inquiry which can on no account be neglected", said Sun Tzu (544-496 BC), the legendary commander of Wu, one of the main states in the ancient China, about 2500 years ago in the opening sentence of his classic work on the 13 Principles of the Art of War.

Nowadays, tax itself is a weapon to strengthen a nation's socio-economic as well as a means to maintain the integrity of a state. Without taxes, the state is unable to provide fuel subsidies, build public facilities, roads, bridges, cheap transportation, affordable electricity costs for the public, free public schools throughout the whole country, security for the entire population of the country and to provide national and state defense.

Each taxpayer who pays tax compliantly is a devout patriot and has a very meritorious role in fighting for the prosperity, security, progress, unity and the continuity of the existence of the homeland, the nation, and the state by taxes.

The problem now in Indonesia is that of about 60 million active workers who have income above the individual tax exemption (PTKP) limit, only about 21 million or 35% are registered individual taxpayers who have a Tax Identification Number. And of those 21 million registered individual taxpayers, there are only approximately 8.7 million of them who have filed their annual tax return. Using simple estimation, it can be said that recently there are only 14.5% of about 60 million citizens who have income above the individual tax exemption limit are paying their taxes and therefore are tax patriots for the nation.

The question now is how to build a "patriotism mentality" of the rest of the 85% citizens who have income above the taxable income so that they too would pay their taxes compliantly.

Referring to and adopting the philosophy of Sun Tzu's "Art of War", in order to motivate people to pay tax, it needs a noble reason of nationalism, the main driver or ideological principles that is big (or referred to as "Moral Law" by Sun Tzu), which can reassure, inspire and encourage the people why they should pay their taxes compliantly without considering direct benefits, however, reveals the final outcome for the sake of the whole nation and its future. The Directorate General of Taxes (DGT) needs such moral cause in order to motivate the other 51.3 million citizens to become tax patriots too for the nation by paying their taxes compliantly.

According to Adam Smith in his Wealth of Nations, people will be pleased to pay the tax if the tax collection system meets the four principles of taxation, or also known as "The Four Maxims", as follows: (1) Equity (or Fairness), which is that the tax collection by the state should be in accordance with the taxpayers income and capabilities to pay tax. The state should not discriminate between taxpayers. (2) Certainty (the principle of legal certainty), which is that all taxation should be based on law, so for those who violate the law will be subject to sanctions; (3) Convenience, which is that the tax should be levied at the most convenient time for the taxpayers, which is at right moment when the taxpayers receives income or receives gifts, and (4) Efficiency (also known as economic principles), which is that the cost of tax collection should be at the minimum cost.

While according to W.J. de Langen, people will pay taxes if the taxation system meets the five principles as follows: (1) Tax Bearing Capacity, which is that the size of the collected tax should be based on the size of taxpayers’ income. The higher the income the higher the tax should be imposed; (2) Benefit, which is that the tax levied by the state must be used for activities that are beneficial to the public interest; (3) Welfare, which is that the tax collected by the state are used to improve the welfare of the people; (4) Tax Equity, which is that in the same condition between taxpayers with each other should be taxed the same amount (treated equally); And (5) Smallest Burden, which is that the tax collected from the taxpayers should be as low as possible, as small as possible in comparison with the value of the tax object so that it would not burden the taxpayers much.

Whereas according to Adolf Wagner, people could be motivated to pay taxes if the tax collection system meets these five principles as follows: (1) Financial Policy Principle, which is that the amount of tax collected by the state have to be sufficient to finance all state activity, (2) Economy Principle, which is that the determination of the tax object should be appropriate, for example: income tax and taxes on luxury goods, (3) Fairness Principle, which is that the taxation should be without discrimination, for the same condition are treated equally; (4) Administration Principle, which is that there should be a certainty of tax collection procedures, billing flexibility and tax cost; And (5) Juridical Principle, that all tax levies should be based on law.

Hopefully all of the above principles can be executed in the field properly and perfectly by all ranks of officials of the DGT and supported by the all other government agencies, especially those that are directly involved in the distribution of the tax money, so that it encourages all citizens who have income above the taxable income to become motivated to eagerly, willingly and correctly pay their taxes for the sake of the whole nation and its future.

*) The information and views set out in this article are those of the author and do not necessarily reflect the official opinion of the institution in which the author works.