The Influence of the Increased Number of Registered Taxpayers to Tax Administration and Tax Compliance

The Influence of the Increased Number of Registered Taxpayers

to Tax Administration and Tax Compliance

Since 2006, Directorate General of Taxes (DGT) has been rolling an activity called Ekstensifikasi program. This program has been rolled with the aim not to extent the type of tax but actually to register the citizens which have income more than non-taxable income stated by the government but they haven’t had Taxpayer ID. The program was formally initiated by issuing regulations number PER-175/PJ./2006, followed by PER-16/PJ./2007 and PER-116/PJ/2007. The ultimate goal of the program is increasing tax revenue through the mechanism of the addition of registered individual taxpayers.

After running for three years, this program has been successful in increasing the number of individual taxpayers in Indonesia. For example in the area where I worked, the numbers of registered individual taxpayers increase significantly, from 109,581 individual taxpayers by the end of 2006 to 521,108 taxpayers in late October 2009. This means there is an increase for more than 400% within three years. On the other hand the income tax revenue where this program intended to, rises approximately 40%, from Rp. 434 billion in 2007 to Rp. 606 billion in 2009 (until the end of October).

Table 1. The comparison between the number of registered Individual Taxpayers at East Jakarta DGT Regional Office before Ekstensifikasi Program (2006) and after Ekstensifikasi Program   (2006 – current)

Description	Before Ekstensifikasi program (people)	After Ekstensifikasi program (people)
	2006	2008 (until Des)	2009 (until Sept.)
Individual taxpayers registered	109.581	400.091	606.091

Table 2. The comparison of income tax revenue from individual taxpayers (in million rupiahs) at East Jakarta DGT Regional Office form 2007 to 2009.

Description	2007	2008	2009 (Until Sept)
Income tax revenue	434,435	487,680	606,148

From this condition we can see that the achievement in the terms of taxpayers’ number is amazing, but how about in the terms of tax administration and tax compliance issue? Apparently this is a new problem that appears. Lately in the DGT agencies there have been an insinuation "the increase of taxpayers number do not add significant tax revenues but just has more work for the tax administration and even more it reduce the taxpayer compliance levels". This insinuation can not be neglected, since data at Table 3 show the number of taxpayers rise more than twice within only one year. But people who agree with this insinuation should consider further that adding the number of registered taxpayers is something inevitable as a part of taxation system reform in Indonesia.

Table 3. Tax compliance of registered individual taxpayers in East Jakarta

Description	2008	July 2009
Individual taxpayers registered (people)	229.605	521.008
Annual Tax Return submitted (people)	63.735	215.474
Compliance	27.7%	41.36 %
Income tax revenue from Individual Taxpayers (PPh 21 and OP) (million)	Rp. 487.680	Rp. 606.148

A.     Tax administration

I will limit the term of tax administration in one part only, which is the administration of Annual Tax Return. Annual Tax Return is a mean of information between DGT and taxpayers. The increasing number of taxpayers will automatically increase the number of Annual Tax Return submitted by taxpayers. If the existing tax administrative systems are not improved, certainly every tax office will have difficulties and cannot catch up in recording the large number of Annual Tax Return submitted with limited number of staffs. As an example, a tax office in East Jakarta area in 2009 must record 18,000 Annual Tax Return by only two employees.  If the problem can not be solved, the increasing number of registered individual taxpayers every year will certainly become one of the major problems in all tax offices throughout Indonesia. Surely the solution is not to add the number of employees, but how to make an efficient tax administration system without adding more employees if it is not necessary. In my opinion, there is no other way that DGT must build a more advanced tax administration system for DGT yet simpler for taxpayers considering the large number of taxpayers (more than 10 million individual taxpayers in Indonesia today) with various understanding of tax matter. 

B.     Tax Compliance

Besides increasing the tax revenue, the objective of Ekstensifikasi program is to increase tax compliance. In East Jakarta DGT Regional Office, for instance, from 521,008 individual taxpayers registered in July 2009, it is reported only 215,474 individual taxpayers have submitted their Annual Tax Return or approximately 41.36% in percentage. This level of compliance is still relatively low although it is already increasing from previous year which was only 27.7% (Table 3). From the value it can be inferred that nearly most of taxpayers (almost 6 out of 10 citizens) are not aware of the importance of tax and tax compliance to their life, or worse, the citizens do not care at all about tax. If the worse thing really happens, then this situation can be dangerous to the country because nobody cares about their own country and that the country cannot run without contribution from its citizens. Directorate General of Taxes of Indonesia should seriously comprehend this condition and should do an action to increase tax compliance level for the good of nation and make everybody in this country realizes that with the current governmental system we embrace, tax is the only budget system that can run the country. 

In my prediction, both of these problems will occur in the next few years. If DGT cannot handle this situation then the Ekstensifikasi program that is already alleged as successful could be replaced by an opinion that the program only brings a problem for tax administration system and lowers tax compliance instead of giving tax revenue potency to support our national budget.

 


Faybudi www.faybudi.blogspot.com

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