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Prabowo pledges to separate tax DG and Finance Ministry, economist: 'Don't be hasty'

Tempo - February 21, 2024

Annisa Febiola and Amelia Rahima Sari, Jakarta – An economist from the Center of Reform on Economic (CORE) Yusuf Rendy Manilet responded to presidential candidate Prabowo Subianto's plan to separate the Directorate General of Taxes from the Finance Ministry. Prabowo will form a National Revenue Agency to boost tax ratio.

Rendy agreed to the concept of a National Revenue Agency. However, he also worried about the political elements to this plan. "Meaning, the agency could become an oasis in the middle of the efforts to increase state revenue, or in this case, tax revenue," he told Tempo on Tuesday, Feb. 20, 2024.

Political intervention to this agency, Rendy said, would negatively influence the agency. The government must beware of this risk.

Earlier, Prabowo mentioned Thailand and Vietnam's tax ratio in comparison with Indonesia. Both reached 16 and 18 percent respectively, while Indonesia fell behind with 10.39 percent in 2022. Hence Prabowo's plan to form a National Revenue Agency, citing efficiency and "to ensure the Finance Minister wouldn't have to deal with it".

Some countries were successful, Rendy explained, while some were not in adopting a revenue agency. One success story Rendy referred to was Peru. The country adopted a National Superintendency of Tax Administration (SUNAT).

According to Rendy, the Peru case showed that autonomy heavily depended on political support and strategy. However, the success of SUNAT as a Semi-Autonomous Revenue Authority warned countries that desire to follow its steps that managerial capabilities are important to approach tax administrative reform.

"SUNAT combines tax evasion control with better tax services, which managed to build a form of business community support. However, Peru's experience also warned of potential mistakes by other countries," he said.

Rendy said the relationship between tax agencies and the Finance Minister must be managed carefully to avoid damaging political interference. SUNAT in Peru faced several challenges such as worsening tax policies, political interference, and weakening institutional environment.

Administrative reform in Uganda faced the same challenges as political power had its grip on the anti-corruption platform. "What we can conclude from both cases is that a strong political commitment is necessary in addition to a separate system. On the other hand, political intervention must be proportional so as to not disrupt the independent work of a National Revenue Agency," Rendy said.

Rendy also believed that the Indonesian government must consider the supporting factors of Thailand and Vietnam's tax ratio. Reflecting on Vietnam, during the last five to ten years the country has pushed for a massive manufacturing sector, which Rendy said "contributed to the tax revenue in the country".

The government must conduct a study before establishing a National Revenue Agency, Rendy said. "Meaning, don't be hasty to form a National Revenue Agency lest [the government] fail to consider the aspects that would negatively impact the agency itself," he concluded.

Source: https://en.tempo.co/read/1835956/prabowo-pledges-to-separate-tax-dg-and-finance-ministry-economist-dont-be-hast