A Possibility of Increasing Audit Coverage to Gain Voluntary Compliance

A POSSIBILITY OF INCREASING AUDIT COVERAGE TO GAIN VOLUNTARYCOMPLIANCE Gunadi Sekolah Tinggi Perpajakan Indonesia, Jakarta, Indonesia Introduction Several general main fungtions of taxation include raising revenue aimed at financing public expenditures, redistribution of income and wealth (within and across generations), and correcting externalities (Alink & van Kommer). In modern and democratic societies taxes require a legal basis, i.e, an act. Indonesia put her tax jurisdiction in Article 23A of the 1945 Constitution. One element of this jurisdiction is revenue jurisdiction, under which a State may legally require part of her people’s resources (income and wealth) to meet her expenditures (Knechtle, 1979). Meanwhile, Le Contract Social (introduced by Rousseau, from Safri Nurmantu, 2003) states that people are oblige to share their resources to their State to meet expenditures for collective interests. Therefore, these theories view that tax from the people’s side is a socio-legal obligation, whereas from the State’s side is her socio-legal rights to share parts of the people’s income and wealth as a support to the state’s revenues. A tax law may only be enacted on the approval by the house of representatives. It implies that the government may only impose taxes under people‟s approval. As from 1984, the tax administration (TA) employs a modern, effective and efficient self assessment system based on voluntary compliance. Under this system taxpayers are voluntarily required to self-assess their tax liablities, pay tax payable without waiting for a tax bill, and file tax return correctly and completely. Art 12(2) of the General Tax Act (GTA) provides that the tax liability written in the filed return is deemed to be those taxes according to tax laws, whereas Art 13(4) governs that those liabilities are deemed definite by laws (inkraght van gewijsde) when during a period of 5 years no tax bill was issued. In order to issue this bill (re-asessment), Art 13(1) jo Art 12(3) TA should have performed tax audit on unreported data found in the taxpayer‟s return. Volume 1, No. 2, September 2020 Page 24 Although under the laws the taxpayers are required to self assess their tax liabilities and voluntarily comply, however, taxes are generally unrequited payments in the sense that benefits provided by goverment may not normally in proportion to their payments. Alink & van Kommer (2015) states that as long as there are taxes, there will be noncompliance as well. As a sign of noncompliant by taxpayers, the Centre of Indonesia Taxation Analysis (CITA, 2019; from Gunadi, 2020) mentions (shown below) that during this decade TA was in difficulties to achieve the budgeted tax revenue and return filing compliant. Table 1. Tax Revenue Achievement (%) and Formal Compliance (% return filing) Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Revenue 95,01 97,38 94,46 92,54 91,85 81,90 81,60 89.68 92,41 86,50 Filing na 52,31 56,22 59,31 60,42 60,75 72,58 71,10 72,90 Na Although in 2016, a Tax Amnesty Act (Law No 11/2016) was introduced which took effect in 2016 and 2017 but it was not able to uplift revenue like the sunset policy (Art 37A GTA) enacted in 2008. As the OECD (2020) provides 80% minimum formal compliance, it appears that during this decade, tax administration was in difficuty to realize that minimum standard. The Ministerial Finance Annual Report (2016), states that compliance is one of the cause of this unsuccessfull effort. I. WHY SOME TAXPAYERS DO NOT FULLY COMPLY UNDER VOLUNTARY COMPLIANCE SYSTEM? Within the self assessment system, TA is expected to achieve compliance outcome by doing maximum overall efforts to gain maximum level of compliance. Individual and business comply with such tax obligations if they file tax return correctly, completely, and paid the real tax on timely basis. Unlike substantial compliance (file return correctly and completely), formal compliance may be measured by return filing. The World Bank Report (2020; from Novianti) demonstrates the rank of tax compliance in some Asean countries as below. Tabel 2. The Rank of Tax Compliance‟s Ratio in Asean Countries 2015-2017 2015 2016 2017 Countries Compliance Rank Compliance Rank Compliance Rank Cambodia 73,06 90 73,06 93 73,06 97 Indonesia 53,66 160 60,46 148 66,83 126 Malaysia 83,95 32 84,31 31 84,16 34 Myanmar 68,64 116 74,81 84 70,03 112 Philipines 66,46 127 66,23 126 71,06 110 Singapore 97,19 5 96,56 5 97,99 5 Thailand 77,90 62 77,70 70 75,80 81 Unlike Cambodia, Malaysia, Myanmar and Thailand which their compliance rank decreases, regardless of that still in the lowest rank, the Indonesian level of tax compliance increases stably. The 2020 Novianti‟s study finds that one of the reasons of the increase in Volume 1, No. 2, September 2020 Page 25 compliance due to the separation of Account Representative‟s fungtions between taxpayers controls from the taxpayers services under the Ministerial Decree PMK-79/PMK.01/2015 as to replace PMK-68/PMK.01/2008. According to the IRAS (Inland Revenue Authority of Singapore) Report (2020; from Novianti), it appears that the modernization of tax administration (electronic based platform) does not only able to facilitate taxpayers with accurate, fast paying and reporting system, but also early detection and prevention of tax evasion with heavy penalties to those noncompliant. Tax noncompliant exists around the world as old as the tax system. While at the same time, the vast majority of taxpayers population comply with their tax obligations, some of them do not do so. The 2002 Webly‟s study on tax compliance (Alink & van Kommer) found 5 elements influencing tax evasion, namely opportunity, perception of fair treatment, individual differences in personality, social norms, knowledge of tax system and the requirement involved. He states that an opportunity as an important explaining factor. Many studies on tax compliance behavior are focused on the taxpayer‟s willingness to comply or not to comply with their obligations. However, many taxpayers do comply with tax laws just simply because they do not have the opportunity, ability, knowledge, and resources to evade tax. Countries employing a pre-populated tax returns system (Nordic countires, Australia, Chile, the Netherlands, Poland, Portugal, Spain and France) and those which already modernising tax administration by integrating information technology (Singapore and China) have already able to significantly reduced the chance not to comply with tax laws. Their TA have been able to e-review almost more than 95% commercial/tax invoices, third parties data, and supported by data filed in a Big Data regimes (Gunadi). As most of their tax potential data are better administered (recorded, analysed, and processed in an electronic based platform taxpayer acco-unts), thefore taxpayers are in the position of no choice except fully co (...truncated)