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Arbitrary tax increase

Tempo - June 25, 2021

Jakarta – The government's plan to increase value-added tax and widen its coverage triggers controversy. The key is build public trust.

If a nation is facing difficulties collecting tax from its citizens, who is to blame? In Indonesia, where the tax ration continues to fall – last year it was only around 8 percent – and is among the lowest in the world, it is usually taxpayers who are blamed. It must be admitted that compliance with tax obligations is still low. But attacking the problem downstream without looking at the issues upstream is clearly a serious mistake.

The more fundamental roots of the problem are in the hands of the government. Since the administration of President Susilo Bambang Yudhoyono, the government has tried to improve the taxation system, including giving large incentives to taxation directorate-general employees. But this still led to the emergence of tax brokers such as Gayus Tambunan and Angin Prayitno.

Therefore, the low level of compliance with tax obligations has a direct link to the lack of public trust in the government. People's unwillingness to pay tax needs to be seen as a consequence. Who wants to pay tax if the results of their hard work are simply frittered away? From building new capital and purchasing weapons to be used against some unclear enemy to funding luxury lifestyles of officials. So it is not simply a problem with the taxation system, but also a matter of transparency and accountability in running the country.

It is against this background that the plan to expand the coverage of value added tax through the General Provisions of Taxation Procedures Law has triggered widespread opposition. Under this omnibus law, the government plans to impose taxes on the purchase of basic necessities, education and healthcare under the category of goods and services usually consumed by higher income people.

Using the excuse of equality and justice, the aim of expanding value-added tax (VAT) is clear: to increase government revenues. From the outset, there are problems with the complexity and the implementation of this plan. Let us take the example of beef used by Finance Minister Sri Mulyani in a working meeting with the House of Representatives (DPR) last week. According to Minister Sri, VAT will only be applied to premium class beef, such as wagyu and kobe. In practice, at present tax is already paid three times on these types of meet. As well as import duties, wagyu bought in supermarkets is already subject to VAT. After being prepared and consumed by customers in hotels, cafes or restaurants, the meat is still subject to restaurant tax.

In other words, rather than being a form of equality, it is discrimination. What is more, people able to afford these high-quality products already pay more income tax. If they have not paid their tax in line with the regulations, this is a problem of collection and the integrity of tax officials. In the end, it all returns to the problem of public trust in our tax system.

There is nothing wrong with the government trying to increase the tax ratio. But the methods used must be realistic and must begin from fundamentals. An increase in public trust is the key.

Read the Complete Story in Tempo English Magazine: https://magz.tempo.co/read/38025/arbitrary-tax-increases

Source: https://en.tempo.co/read/1476367/arbitrary-tax-increas