Selasa, 11 Januari 2022

Business and Tax: The Love-Hate Relationship

 

To make sure that Indonesia has good economic stability and attract more investor to come due to low-risk business climate, the government must secure to have the good revenue. And as developing country, Indonesia still depends on tax payment to secure at least 70% of the total revenue. So, even tax might sounds scary for some business holder, we cannot deny the important of tax payment for increasing growth of the country as well as stimulating more conducive situation for business holder itself.

Like a love and hate relationship, however, the relationship between business holder and tax institution will not be that simple. They affect each other with complex regulations here and there. Starts from the simple way, tax becomes one of important variables for doing business.

 

However, according to World Bank Data (2018) as shown in figure below, stated that Indonesia still in the low rank (73rd compare to Malaysia in rank 15th as neighboring country), for easiness of doing business. This fact relates with the mandatory task of business owner to understand the complexity of tax regulation and taxpayers services before they build their business in Indonesia.

 

Figure 1. Ease of Doing Business in Indonesia

Unfortunately, despite the easiness for doing business in Indonesia has been improving a lot for some cases, i.e. for starting business, registering property and getting credit, the easiness for paying taxes remains low and even decreasing (figure 2). But at some point, tax payer services, can be one of the strongest reasons for tax compliance rate. It leads us to the conclusion that tax payer services deserve a lot of attention to make sure the business holder feel easier and comfortable to pay tax.

 

Figure 2. Variables Ease of Doing Business in Indonesia

One first thing the business holder should know that everyone who will start doing business must have a NPWP and beforehand, business entities should fulfill the requirements, like deed of establishment and business license.

 

To achieve good tax payer service then we need to know the rights and obligations of taxpayers. Based on OECD’s Committee of Fiscal Affairs Working Party Number 8 (1990) there are six taxpayers’ rights, i.e. right to be informed, right of appeal, right to pay no more than the correct amount of tax, right to certainty, right to privacy, right to confidentiality and secrecy. In fulfilling the rights of taxpayers in the form of certainty and to pay no more than the correct amount of tax, Directorate General of Taxation (DGT) had formed tax audit position and Indonesia implement self-assessment system in collecting tax. The correct paid amount of tax is one of the taxpayers’ mandatory and responsibility. If something happened, for instance there are overpaid tax refund requests or un-clarity in the report or doubt on the correct tax reporting, etc, taxpayer should be ready to be audited.

 

As one of the tax auditor in Indonesian tax office, I have been directly facing some cases when dealing with taxpayers. For 8 years I am working at DGT, I realized some cases happened repeatedly, not only for me but for all of the officers. In my humble perspectives, these four cases possible for being obstacles to maximize Indonesia’s main state findings resource, therefore urge to meet the solution:

 

1.    Due to lack of information and/or people’s awareness, these processes of registering NPWP sometimes lead to some cases. The cases often occur for example are taxpayers’ misunderstand NPWP to not have an inherent obligation, NPWP is not the same as passport. NPWP has an inherent obligation as long as the owners is still there, like reporting obligation.

Moreover, tax reporting in Indonesia not all can be done online yet and creating more hassle for tax payer since they should back and forth for filling the manual reports in the tax office.

2.    When taxpayers have no income, they tend to not make tax reporting. This was a problem when the taxpayer proposed deleting NPWP for business entities that were no longer operating. As we know, economic growth of the country is always fluctuating, as well as the business world. According to tax regulation, Per-20/PJ/2018, deleting NPWP must go through an audit process after all tax obligations is completed. Taxpayers often reject to make tax reporting while there are no business activities. Nevertheless, no tax reporting means responsibility to pay fines or receive sanction from taxpayers.

3.    Every business entities have a different life cycle. According to Kondratiev in his book tittled “The Major Economic Cycles” (1925), the long cycles had three stages: expansion, stagnation, and recession.

        Figure 3. Economic Life Cycle

Figure 3. Economic Life Cycle


Audit process in newly life of business entities must be different with the peak one. As well, audit process of entity closure has a specific treatment. Equal treatment of audit process in various type business life cycle will undermine business development in Indonesia. In other hand, inappropriate audit process can create tax potential loss. As we know, tax is the main source of state funding in Indonesia. Recently, there is new tax regulation related to small-scale taxpayers, PP 23/2018. The treatment for newly business entities using PP 23 or the PPh Act is still a matter of discussion between taxpayers and tax officers. Normally, taxpayers will use the most profitable regulations for their newly developed businesses.

1.    Another problem is unsynchronized data among tax service offices across regions. Taxpayers who do business usually have branches in various regions and each branch has responsibility to report each other. These miss linkage lead to the case of double taxation if tax payer services are not supported by adequate data synchronization. The audit process can be repeated in various branches with repeated document requests.

 

So, what makes different when we are doing business in other area in OECD member country? Australia for example with good rank in easiness of doing business especially in paying taxes (rank 18), has a relatively complex federal tax system that includes an income tax, a capital gains tax, a consumption tax (the GST) and a number of employment-based taxes (for example, fringe benefits tax). Australia also has a number of State/Territory-based taxes, such as stamp duty, land tax and payroll tax, and one of the keys to doing business in Australia is understanding how these taxes interact and how they affect business structures and transactions. (Minter Ellison, 2018)

 

Indonesia which does not have as complex tax regulations in Australia need to improve skills in understanding tax rules that we have. This understanding must be adjusted to the existing economic conditions and types of taxpayers. Furthermore, another important role of tax services includes the process of understanding existing tax regulation for the taxpayers. For example by providing consultancy regarding taxpayers treatment for who just run their business. On the top of that, building good communication and cooperation between tax auditor and taxpayers should be the key factor to make sure the process is running well. While the tax auditor guarantee they are conducting the job well, the taxpayer should understand that providing accurate data and time is crucial for audit process otherwise it will complicate taxpayers itself and hinder their business as the consequence.

 

DGT needs to take more concern in fulfilling taxpayers rights according to OECD directives. Self-assessment system initially is made to create easiness for taxpayers to fulfill their obligations. So, it should continue to support the ease of doing business in Indonesia. The standard of audit process at DGT needs to be continuously improved so that tax payer services will run well without eroding the potential tax.

 

I believe by taking this course I will gain more understanding the complex realm of doing business and tax payer services as my field. I will be more careful and professional in conducting tax audit especially in auditing taxpayers in newly business and in end cycle of business. After completing this course, I hope that tax auditors in Indonesia especially myself will do the duty effectively and professionally without reducing comfort of businessmen in Indonesia. Instead, tax auditor can keep the correct tax reporting by taxpayers in maximizing tax revenue. So that, tax services can boost doing business in Indonesia and improve economic growth.

                                                     

Will never ends in me I will do share this knowledge to my colleagues in my office. In regular forum counseling on taxpayers by the tax office needs to be informed of new relevant knowledge related to tax services for the business. So, all of tax auditors, account representatives, and tax office concern about the importance of taxpayers services in boosting tax revenue, especially businessmen taxpayers. This knowledge is important too to be shared in tax auditor forums regularly, and I am eager for that.

 

Furthermore, the global networks from various countries with their various experiences can provide me more resourceful information to be implemented in DGT office. If I can imagine, by become an effective-efficient DGT and high standard in taxpayers services, Indonesia will become the most favorable country to do business, alongside the attractive beauty of Indonesia’s nature.

 

 

 

References:

 

OECD Committee of Fiscal Affairs Forum on Tax Administration. 1990. Taxpayers’ Rights and Obligations. Centre for Tax Policy and Administration.

 

Market Business News. 30th of Jan 2019. https://marketbusinessnews.com/financial-glossary/kondratiev-cycle/.

 

Minter Ellison. Doing Business in Australia | Taxation. 29th of Jan 2019. https://www.minterellison.com/articles/doing-business-in-australia-taxation.

 

 

World Bank. Ease of Doing Business in Indonesia. 28th of Jan 2019. http://www.doingbusiness.org/en/data/exploreeconomies/indonesia.


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