Rendi Akhmad Witular, Jakarta – "Jono" is a junior official in an East Jakarta tax office, and regularly parks his silver BMW sedan, which he drives from his luxury home in Cibubur, Bogor, at his friend's house in Jakarta before riding a Honda scooter on the last leg of his journey to work.

Although possessing only a high school diploma, Jono well understands that he needs to avoid arousing public suspicion over the wealth he has gained from falsifying tax documents and claims for value-added tax (VAT) refunds.

Jono readily admits he has been involved in this dirty work for more than five years, inflicting estimated losses on the state of around Rp 14 billion (US$1.48 million). While his case is just the tip of the iceberg, it highlights how the cancer of corruption has spread throughout the Directorate General of Taxation.

At a time when the government is in dire need of money to provide adequate public infrastructure and services, the relevant ministers and officials in the economic ministries seem helpless to stamp out the graft.

With the tax directorate general tasked this year with collecting Rp 362 trillion ($38.51 billion) in taxes, and a plethora of reports on corruption, the warnings from analysts that leakage of tax revenue may amount to many trillions of rupiah annually need to be heeded by all.

An internal report obtained by The Jakarta Post recently from a tax office shows Finance Ministry's Inspectorate General has identified a variety of corruption methods and causes.

However, it remains unclear why the report has not been acted upon to prevent corruption in the tax service, nor why it has not been taken into consideration during the drafting of the recent tax law amendment bills by the government.

Representatives of the Indonesian Chamber of Commerce and Industry (Kadin) who were involved in drafting the amendments seem to have missed the big picture by merely focusing on technical matters, such as tax rates and procedures.

As highlighted in the Inspectorate General's report, corruption in the tax service occurs primarily because of the service's excessive powers, including its power to set tax policy, collect taxes and supervise tax collection.

Tax analyst Munir M. Ali of the University of Indonesia said the spiraling corruption in the tax service had long been obvious. The spread of the cancer was helped by the fact that the service was structured in such a way that it left no room for balance or the sharing of rights.

"Everybody should be blamed for making the directorate general excessively powerful, thus opening the way for its officials to abuse their powers. Whoever the tax chief is, corruption will continue unabated unless the service's powers are reduced," he said.

Munir suggested the government and legislature start stripping the service of some of its powers by separating the functions of policy-making, tax collection and oversight during the upcoming deliberations on the tax law amendment bills.

Among the laws to be amended are Law No. 16/2000 on general taxation arrangements and procedures, Law No. 17/2000 on income tax and Law No. 18/2000 on VAT and luxury goods tax.

"Our fiscal incentives and tax rates are fairly competitive worldwide, on average. But investors are still reluctant to come here because of the poor implementation of the tax laws, which leads to a high-cost economy and uncertainty," said Munir.

"China has the highest tax rates in the region, but investors are still going there as they feel comfortable with the tax regime, despite the high rates. This shows that lower tax rates and good incentives will not count too much in the absence of a good system," he said.

Lack of transparency is also blamed for corruption in the tax service, with the tax legislation providing little in the way of rights for taxpayers to seek clarifications or explanations regarding the calculation of their tax bills.

The legislation only gives the taxpayer the "opportunity" to seek such information, instead of conferring a "right" on them to do so. This gives excessive discretion to tax officials in calculating the amount of taxes owed.

Another concern is the numerous "gray areas" in the tax legislation that are subject to differing interpretations between tax officials and taxpayers, thus opening the way to bargaining, collusion and extortion.

As things stand at the moment, there is no institution that is capable of resolving taxpayer complaints independently, because the existing tax tribunal does not come under the auspices of the Supreme Court but rather the Finance Ministry, with the judges' salaries being paid by the ministry.

Taxpayers are often reluctant to appeal to the court as they are required to pay 50 percent of their alleged tax arrears before the court will hear their cases, which can sometimes prove to be burdensome.

"If the government is unable to immediately overhaul the tax service, it could instead speed up the establishment of modern tax offices applying the system currently employed by the Large Tax Office, which has proven itself to be clean and effective, said Munir.