Tax Research Sharing Session: Lesson Learned from the Indonesian Tax Amnesty Program
Rifdah Khalisha – Public Relations FEB UI
DEPOK – (8/9/2021) Tax Education and Research Center (TERC) FEB UI together with the Postgraduate Study Program in Accounting (PPIA) FEB UI held a routine Tax Research Sharing Session with the theme “Lesson Learned from the Indonesian Tax Amnesty Program” on Wednesday (8/9).
At the event, speakers were Risanto, S.E., M.Com., M.S.Ak (Alumni of the PPIA FEB UI Joint Degree Program) and Himawan Saputro, Ph.D. (Staff of the Ministry of Finance of the Republic of Indonesia) along with the host Yulianti Abbas, M.E, Ph.D. (Head of PPIA FEB UI).
In 2016, Indonesia began implementing a tax amnesty or tax amnesty program. In practice, quite a lot of taxpayers (WP) took part in the program because the government provided convenience facilities, such as the abolition of sanctions and the abolition of tax audits. The hope was that taxpayers can report assets that have not been reported, both domestic and foreign assets.
By the end of the program, 973.4 thousand taxpayers had participated with a total paid-in of Rp115.9 trillion. Based on the disclosure of assets, Indonesia’s tax amnesty program is among the highest in the world with an achievement of IDR 4,884.2 trillion.
Risanto explained, “From a company’s perspective, tax is a factor that underlies decision-making within the company. Taxes take up a large proportion of pre-tax profits and reduce the distribution of shareholder profits so many companies are looking for loopholes to avoid taxes.”
He added that “From the government side, taxes are the main source of state revenue. The Ministry of Finance noted that the taxation sector revenue was Rp. 1,545.3 trillion of the total realization of state revenues of Rp. 1,957.2 trillion, or about 78.95 percent. In the end, the government conducted the tax amnesty program to meet the need for tax revenues and increase taxpayer compliance.”
In short, the researchers divide tax avoidance into non-conforming tax avoidance and conforming tax avoidance. Nonconforming tax avoidance is a tax saving strategy that causes a decrease in taxable income, but does not have an impact on financial income, while conforming tax avoidance is a tax saving strategy that causes a decrease in both taxable income and financial income.
Therefore, this piqued Risanto’s interest to researchregarding a tax amnesty, especially considering the current pandemic situation. This study aims to analyze tax avoidance behavior by taxpayers – both conforming and non-conforming – after the tax amnesty regulations are complete with the rules for disclosure of financial information for tax purposes.
He explained regarding a previous research, “According to the research of Shevlin et al. (2017) in the American context by using the nonconforming tax (ETR) measure, taxpayers are increasingly aggressive in avoiding taxes after tax amnesty and are increasingly so due to frequent tax amnesty. While Waluyo’s research (2017), which used questionnaire data, tax amnesty does not affect taxpayer compliance in Jakarta.”
During the pandemic, research by Richardson et al (2015) found that financial hardship is positively correlated to tax avoidance. Then, research by Brondolo (2009) revealed that the management of companies with financial difficulties considers the tax authorities to be less strict in enforcing tax laws so that it is less risky to reduce corporate taxes aggressively.
His research uses the Difference-in-Differences (DiD) method and takes data from the 2014 to 2019 financial statements, the Thomson Reuters Eikon database, and the financial statements of the Indonesian Stock Exchange (IDX) issuers. In the sample, companies listed on the IDX are based on several selection criteria, including companies that are not in the financial sector according to the GCIS category, are not subject to final income tax rates and other special income taxes, do not experience losses during the observation period, and offer complete information for the measurement of research variables.
In line with the research of Shevlin et al. (2017) and Badertcher et al. (2019), Risanto concludes that participating companies are increasingly aggressive in avoiding taxes with a nonconforming strategy after participating in the tax avoidance program. When faced with the impact of the COVID-19 pandemic, tax avoidance participants turned to conforming tax avoidance strategies.
Risanto hopes that this research can have implications for providing input regarding the next stage of the tax amnesty facility plan so as to achieve an increase in taxpayer compliance after the amnesty; produce more comprehensive empirical evidence regarding changes in tax avoidance behavior before and after the amnesty; highlight the Difference in Difference (DiD) research method, which is different from several previous tax amnesty studies; and using the variable of conforming tax avoidance to measure tax avoidance.
Furthermore, Himawan explained, “In the research of Gordon and Li (2009) and Besley and Persson (2014), tax avoidance is more widespread in developing countries because taxpayers do not receive third party information and most taxpayers come from the informal sector or small companies.”
He added, “However, Le Borgne and Baer (2008) see the tax amnesty program is able to recover some tax evasion, around 0.92% of GDP in Indonesia, 0.62% of GDP in Chile, and 0.56% of GDP in India. Other works have also found evidence on the impact of tax amnesty compliance, for example the research of Alm et al. (1990).”
Himawan’s research studies the determinants of tax avoidance and the impact of tax amnesty compliance. In his research, he used data from the 2016 Indonesian tax amnesty program and administrative data from 2010 to 2017. He also used quasi-experimental variations in the difference in tax collection intensity between entrepreneurs and employees to estimate the effect of tax amnesty compliance.
Himawan shared his findings. First, various external factors motivate the decision to avoid taxes. In other words, employment, income, withholding taxes, and setting tax rates affect the likelihood of participating in the tax amnesty program. This supports the statement of Slemrod (2019), which stated that the most important external factors encourage compliance.
Second, tax amnesty has a limited compliance effect. The program increased the reported earnings of the top 1% earners by approximately 6.1%. The potential cause of limited impact is the Indonesia-based tax administration. This is in accordance with the statement of Alm et al. (1990) who found that a combination of clemency and enforcement is able to increase compliance by 21%.
Lastly, policy implications. Tax amnesty can facilitate taxpayer compliance if it is followed by an increase in the probability of detection after the program. For example, relaxing access to financial data, increasing the intensity of tax administration, and so forth.
(am)