by Jennie S. Bev
Benjamin Franklin once said that the only certain things in the world are death and taxes.
Indonesia is definitely suffering from lack of transparency in taxation system, so death could be more favorable. And by “transparency,” I’m referring to the ease of verifying incomes (both earned and unearned) and deductions, allowing tax payers to clearly and directly see where the taxes paid are allocated, particularly those promised for “the welfare of the people.” Without a good system, we can only expect to see more tax avoidance, tax mitigation, and tax evasion by corrupt tax payers and corrupt tax officials like Gayus.
The underlying philosophy of taxation in Indonesia is noble, as posited in UU No. 28/2007 article 1, “kontribusi wajib kepada negara yang terutang oleh orang pribadi atau badan yang bersifat memaksa berdasarkan Undang Undang, dengan tidak mendapat timbal balik secara langsung dan digunakan untuk keperluan negara bagi sebesar-besarnya kemakmuran rakyat” or translated as: “mandatory contribution to the state by individuals or entities as required by Laws, without getting any direct reciprocity and for the purpose of the state’s for the welfare of the people.”
We should remind ourselves that a taxation system is not only about paying the government to do their jobs but it is also an avenue for the people to receive our rights. In short, a tax account has two columns: credit and debit. Just like your bank statement or other accounting books: account payable and account receivable, spending and receiving, money out and money in. We pay taxes and we also receive assistance.
All in one account, it’s that simple.
The thing is, for Indonesia to do a major overhaul and implement a transparent taxation system requires a big heart from government officials because it would lower their power considerably.
Based on this principle, using US federal and California taxation systems as comparison, income tax has four major elements: incomes, exemptions, credits, and tax refund or tax owed. Both earned and unearned incomes are taxable, with some exceptions, such as disaster relief payments and injury compensations. Here goes the “money out” column.
Adjustments are allowed with exemptions and credits. Here goes the “money in or money stays” column. The underlying philosophy of exemptions and credits is providing minimal assistance to those who are qualified (such as those with children) and those who are in need (such as those who earn less). The ultimate purpose is keeping tax payers in a good shape financially, which is “the welfare” side of taxation.
Exemptions, however, have phaseout thresholds, meaning those earning top dollars are perceived as self-sufficient, thus the pooled taxes should be diverted to those who are in need or “poor” by standards used. In 2009 US federal income taxation, personal exemptions are reduced for singles earning more than $166,800 and married filling joint $250,200.
Those who finance their children and dependents, such as parents or family members, receive limited child credits and dependent credits. Those with small children who put them in childcare services also receive a limited amount of child care credit. On state level, whenever a disaster is recorded officially, disaster area credits are also allowed by adjusting the dependent credits. For instance, by hosting disaster survivors at home, a taxpayer is allowed to receive a limited credit from the state or to claim them as his temporary dependents.
In Indonesia, taxation system is complicated, vague, and elusive. Most Indonesian citizens aren’t even aware of the underlying principles and pooled taxes are “distributed” to the people through government projects, not directly to tax payers’ accounts.
The cliché defensive remark we have been hearing has been, “Most Indonesians are too poor to pay taxes, only the rich should pay taxes.”
That’s a wrong misconception because a tax account has two columns: credit and debit. The rich are likely to pay more taxes, but the poor (or those needing temporary assistance) are likely to receive credits. Every one with income (both earned and unearned) must have a tax account and should be a taxpayer, regardless whether he or she actually pays or receives. And government is simply a conduit, a messenger.
In capitalist countries, due to “loopholes” in the system, the rich pay less tax than the poor despite the progressive taxation from 0 percent to 35 percent. Progressive taxation means “the more income you make, the more taxes you pay.” Among the “loopholes” favoring the rich are trust fund mechanism and other corporate laws. Depending on the governing administration and current financial need or abundance, tax provisions change every year.
In socialist countries, taxes are very well distributed, allowing the wide gap between the rich and the poor to narrow down considerably. Denmark, for instance, is one of the most taxed countries with tax-to-GDP ratio of 48.9 percent.
The thing is, where the tax pendulum swings is a big question mark in Indonesia. Indonesia claims itself to be based on The Five Principles (Pancasila), which is somewhat socialistic but also a bit “shy” to admit. Pancasila promotes godliness, pluralism, and social justice. Excellent points taken, but how do you actually implement such noble notions in applicable tax provisions?
Taxing should serve social purposes, first and foremost. Taxing isn’t about making a cut from lucrative businesses or incidents.
PedomanNews.com, March 4, 2011