The news from the end of the telephone line must not have been good, because it caused Fuad Rahmany to raise his tone. “That’s why you should invite me over, so I can explain about this important issue,” said Fuad, director-general of taxes. On that night, two weeks ago, a legislator had just told him that the House of Representatives' (DPR) Finance and Banking Commission had just deliberated the Bill on Banking. One of the result was that banking records can be accessed by the tax director-general for investigative purposes.
Essentially, the amended legislation proposed by the DPR will give tax authorities more auditing leeway. The law on Taxes already regulate the uses of bank data for tax purposes. However, tax investigators cannot use it arbitrarily, because the law on banking guarantees secrecy of the data. In practice, tax offices can only use bank data when they investigate a suspected criminal case.
Fuad could not conceal his disappointment. “If the bank data is only used during the initial stage of the investigation, it means the scope for our work will be limited,” he told Tempo, following the telephone call. He claims to have suggested that the bank records should not be limited to access only during investigations, but also to be used to dig for potential tax receipts. “Without it, we would have a difficult time reviving up the tax ratio.”
Fuad has lately been heavily criticized for the low tax rate against GDP, which has not budged from about 12 percent. For the three consecutive years he failed to reach the target of Rp 916.2 trillion, or 92.06 percent of the targeted Rp995.2 trillion tax revenues. It will not become any easier as he heads toward retirement at the end of this year, as his office is expected to cough up Rp 1.142 trillion or close to 70 percent of state revenues.
Two weeks ago, Fuad met with Tempo’s Agoeng Wijaya, Wahyu Dhyatmika, Budi Riza and Sukma N. Loppies, at his South Jakarta office. During the interview, he frequently complained over the public’s high expectation of the tax office. “Yet, we are left alone and neglected,” he said, referring to his limited human resources capacity.
Why are you insisting that bank acounts be allowed to be accessed for tax purposes?
For us this is a serious matter. I am ashamed when I meet with representatives of the Organization for Economic Cooperation and Development (OECD) member countries, since Indonesia is the only country that does not dare to open bank accounts for tax purposes. Even the US, the most capitalist country in the word, follows [this policy].
How does the US do that?
They have [a policy] called Foreign Tax Compliance Act (FATCA), a kind of law on tax compliance applicable to their citizens abroad. So at any time the tax authorities can have access to bank accounts of their citizens, not only in their home country, but also in other countries. This means they can force Indonesia to give them access to the bank accounts of their citizens over here.
What is the objective of the tax directorate-general in pursuing such a policy?
Do you know why Indonesia’s tax ratio can never be high? Because close to 70 percent if all economic transactions in this country do not pay taxes. Many people, including the very rich, have not paid their taxes. Millions of people. Only 30 percent of Indonesians pay taxes, the reaining 70 percent do not. The numbers are no longer in the tens millions but hundreds of millions.
Wouldn’t it be enough to use bank accounts when taxes are being audited?
Should we wait to investigate before we can look at taxpayer’s bank accounts? Investigation don’t come suddenly, there is a reason for them. That’s why, bank accounts should be the basis of all investigations. That’s how it should be, not the other way around.
Can you project the size of tax revenues were you to have access to bank data?
There are about 20 million bank accounts. It’s unlikely for us to monitor them all. The Savings Guarantee Board (LPS) once revealed that money of business bank account holders in Indonesia was excess of Rp3.500 trillion. About 50 percent is controlled by 180 bank accounts with amounts over Rp2 billion each. That would be enough for us to start with. Perhaps from there we can see who the mine owners are or other businesses who never pay taxes. So far, we only see their homes, not their incomes. That’s why bank accounts are the most potent documents to prove the taxpayers’ wealth.
Perhaps they are afraid the tax office can have wide access over their accounts.
Why should they be afraid if they have rightly paid their taxes?
But people see how unfair tax officials can be, when they tax individual taxpayers but allow big corporations to escape paying taxes.
Who says so? About 97 percent of tax revenues come from corporations. Some 60 percent of our total revenues come from big taxpayers. If people question why the tax director-general spends a lot of time looking at small and middle-income taxpayers, that’s because millions of them don’t pay taxes.
Actually, wasn’t it last year that small to middle –income people began to be taxed?
We see tax revenues from micro, small and mid-scale enterprises not on the basis of their values, because they are not big, but so that they learn to pay taxes. In fact, we never go after them.
Didn’t you start going after individual taxpayers about three years ago when you started your job? Why does it seem to be an endless problem?
It’s because of our limited capacity. We are not only short of personnel, but also of offices and operational funds. Right now, the number of our employees stands at 32,000 people, compared to Germany which hires 110,000 people, even though their total population is one-third that of Indonesia. Or take japan, which is has 66,000 tax employees serving half the number of Indonesians. That’s why in Tanah Abang market in Jakarta, for example, although there are 20,000 shops there, we can only deploy three people to cover them, when it should be at least 50 people.
Perhaps it makes sense for a body directly under the president to manage taxes.
That would be pointless if the capacity remains limited. The problem is not that. We could a do better job under the Finance Ministry, if they listened to us. I have been saying for the past two years that we needed an additional 20,000 employees, but every year, all I get is about 2,000 new people. Yet, every year our needs increase. Today, we need 95,000 tax people to be on a par with other countries.
What would be the impact if you had that capacity?
If our capacity were that big, and we were authorized to have access to bank accounts, I think our tax ratio can go up to 16-17 percent, from our current 12 percent. The additional 4 percent would mean Rp500 trillion. This should be a consideration of anyone who will be part of the future government. If we are asked to seek revenues, give us the capacity. So far, the tax directorate-general is left to remain a small entity. We are expected [to produce results].
Is the reason why you have not reached your targets in the past three years?
Actually, last year we reached 92 percent of our tax revenue target, even though Indonesia’s economic growth slowed down considerably. We had aimed for a 6.8 percent growth but realized only 5.7 percent. Nominally, the GPD grew by 9.6 percent, while our nominal tax revenues grew by 10.5 percent. This means we actually achieved over the GDP.
With the current economic situation and limited capacity of your tax office, is it realistic that the target of over Rp1.100 trillion can be achieved?
That’s difficult to answer. It’s still too early. We could be accused of being pessimistic.
*)Tempo Magazine, February 24th 2014