Indonesia’s Non-Taxpaying Culture
Is it necessarily true that someone presented with the option to evade taxes will always choose to do so? Beyond the issue of integrity, the answer to this question largely depends on what paying taxes means to that individual. When untainted by diversion (of tax monies from its unintended use), tax is a fundamental way to funnel a significant portion of a country’s income to the government provision of public goods (e.g. health, infrastructure, education, national security, etc). In the absence of government and taxes, such public goods are likely to go unprovided due to the high likelihood of unprofitability when supplied by the private sector.
It is important to understand that public goods naturally provide huge benefits to society when considered in aggregate. As an example, consider how a person driving a car and another driving a motorbike both benefit from better transport infrastructure. More abundant and higher quality roads means less traffic, less pollution, and higher productivity — a set of indisputable benefits to all usually only made possible though tax funded government spending. Indeed in Indonesia, tax income appears to be the staple fuel behind this spending with 74.6% of the entire state revenue coming from taxes in 2015. What we draw from this illustration is that people shouldn’t be so reluctant to pay taxes because its benefits are clearly significant.
Unfortunately in Indonesia, tax evasion appears to have become the unassailable norm amongst the country’s vast population of could-be taxpayers. Out of more than 250 million people, only 27 million Indonesians (10.8% of the population) are registered taxpayers and less than a million of these Indonesians paid what they owed in 2014. Why? One might argue that it’s because tax collection efforts have historically been lackluster in Indonesia. With naturally little incentive to pay taxes, people simply evade paying because it’s so easy!
True? Yes. The whole picture? No. A deeper question must be addressed — is it possible that the inability of the government to use taxpayer monies appropriately and effectively seriously debilitating taxpayer incentives? If one were to scour the past for evidence of the government’s ‘inability to use taxpayer monies appropriately’, one would effortlessly find a plethora of promised but delayed or outright cancelled government projects. Furthermore, high-profile corruption cases and government budget abuses that make headlines at an embarrassing frequency also damage the government’s credibility. In short, the government’s persistent missteps and inherent inability to use tax monies appropriately may have cultivated the perception that the government is unable to fairly compensate tax-payers (in the form of public goods) for what they are ironically expected to pay for.
Many would concur that convincing someone to pay for something they know will benefit them is, by far, a much easier task than if that benefit was uncertain. Such is the dilemma facing Indonesia’s (would be) taxpayers — a dilemma founded on the government’s lack of credibility. Wherever credibility is lacking, doubt is in abundance, and doubt by taxpayers guarantees collection and enforcement to be a painstakingly costly task. Even armed with threat of punishment (which in itself has its own credibility problem), collection initiatives by a non-credible government will remain hugely expensive when compared to that by a trusted government.
If deficient tax collection is a problem, at least one solution obvious. That is for the Indonesian government to live up to its designated role as provider (where it is lacking) for the Indonesian people. Stop misusing taxpayer monies, start executing government projects as promised, and regain well-needed credibility. Maybe then will the government be able to boost tax revenues without having to deploy an army of 4,550 tax officers and 32,000 compliance staff (as is slated to occur in 2016), whom, ironically, are probably being paid using taxpayer money.
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