Thursday, October 27, 2011

Reshuffling the Indonesian tax system

Berly Martawardaya,

The Jakarta Post (original link)
Depok, West Java | Thu, 10/27/2011 7:36 AM

The dust is beginning to settle on the Cabinet reshuffle frenzy and it’s time to get back to the arduous task of actually governing Indonesia. Finance Minister Agus Martowardojo is still in the Cabinet. Thus, the responsibility to raise revenue to finance Indonesian development is still on his shoulders.

Aside from tax, sources of revenue for the government are profit transfer from state-owned companies, sales of natural resources (still dominated by of oil and gas), plus other non-tax revenue in the forms of excise, fee and tariff.

In 2010, the tax revenue was Rp 723.4 trillion (US$81.7442 billion), which made up 72.9 percent of total government revenue. In the 2012 proposed budget, the value goes up to Rp 1,019.3 trillion which made up 78.8 percent of total revenue. The increase of the target compared to 2011 is 16 percent in terms of value.

The target above is not easy but still achievable. Especially since Indonesia’s tax ratio compared to GDP for 2012 would be only 12.66 percent, which is lower than in 2008 when there was a similar ratio of 13.3 percent. Furthermore, the tax ratio of most of the more developed members of ASEAN is higher than 15 percent.

Aside from increasing taxes, what can Indonesia do to increase tax revenue?

A nation’s tax system is often a reflection of its common values and/or the values of those in power. It is often said that one common value of Indonesia is gotong royong which was translated by Paul Michael Taylor & Lorraine V. Aragon, curators of Asian Ethnology at the Smithsonian National Museum of Natural History, as cooperation among many people to attain a shared goal.

American Congress is currently considering a new tax rate that will generate revenue by levying a 5.6 percent surtax on a taxpayer’s modified adjusted gross income in excess of US$1 million. The revenue will be mostly used to finance improvement in infrastructure, education and increasing research capacity.

US President Barack Obama often remarks in his speech that everyone is his brother’s keeper. Everyone is tied to one another; it’s what allows Americans to pursue individual dreams, yet still come together as a single American family. “E pluribus unum.” Out of many, one. Not everyone for himself.

Thus, he proposed that the more fortunate among Americans contribute more during an economic downturn. The same people with high income and skills are best places to benefit more from an economic upturn should one come.

The official number, which is likely to be underreported, shows Indonesia to be more unequal than Japan, Australia and most of European countries. The rich in Indonesia are notoriously known to have many privileges in business and legal matters. Thus it is only fair that they contribute more to the improvement of their fellow citizens.

The top tax rate for personal income has been decreased from 35 percent to 30 percent for incomes of more than Rp 500 million as part of a stimulus measure dating back to the sub-prime mortgage crisis of 2009. If President Yudhoyono wants to prove that he is decisive and serious about increasing people’s welfare, a 35 percent tax rate for personal income above Rp 1 billion would remove any doubts.

The second measure we need to do is evaluate Value Added Tax (VAT). Adam Smith stated in his masterpiece, Wealth of Nation (1776), that a tax system should be designed to ensure equality, certainty, convenience in payment and ease of collection.

Value added tax (VAT) supposedly avoids multiple taxation problems in sales tax by taxing only the value added at each stage of production. VAT is assessed and collected on the value of goods or services that have been provided every time there is a transaction.

The seller charges VAT to the buyer, and the seller pays this VAT to the government. To work well, VAT needs sophisticated documentation and credible tax administrators.

Richard Bird (2005) in his comprehensive article entitled “VAT in Developing and Transitional Countries” stated tone major problem with VAT is the existence of a fundamental gap between the institutional requirements for good VAT administration and the real fiscal institutions in place in a country. Since few developing and transitional countries can meet these criteria, attempts to use VAT “incentives” seem unlikely to yield good results.

The third measure involves altering our basic tenets of decentralization. It is true that when the Regional Autonomy Law No. 22 and 25 was enacted in 1999, a number of provinces with rich endowments in natural resources were screaming, even threatening independence, over a larger share of revenue from natural resources.

Nevertheless, it’s not an optimal economic arrangement. The current system encourages regions to extract as much natural resources, especially energy producing commodities, as fast as possible.

It is better if one region knows that a new technology will come out in a few years that will improve mining procedure to be more environmentally sound. But the longer it waits then the later the mine will operate and less money it will receive. Worse, it the stream of revenue might only start after the regent or mayor’s term ended.

To increase a region’s revenue, it is a common practice to impose numerous kinds of excise and local tax that are often harmful from the national point of view since they increase the cost of doing business with few benefits provided. The region has no stake in overall sustainability and profitability of a company.

A better system would encourage regions to provide better investment and business climates. If a region receives some share of national personal and corporate tax then it will compete to attract profitable and high net value person to reside in their region. There will be interspatial competition to ease business instead of race to put obstacles.

A comprehensive strategy to increase tax would also need stronger rule of law and harsher punishment for tax evasion as well as tax collector acting criminally. There have been a number of high-profile tax fraud and money laundry cases that should not be allowed to happen again.

Improving the Indonesian tax system is a long and grueling journey. But as one of America’s best presidents, Franklin D. Roosevelt, once said, “after all, are dues that we pay for the privilege of membership in an organized society.”

The writer is an economic lecturer at University of Indonesia and senior economist at INDEF.

Tuesday, October 11, 2011

Negara Tidak Boleh Kalah Menghadapi Krisis

Harian Kontan tanggal 11 Oktober 2011
Halaman 23 (tidak tersedia online)

Berly Martawardaya

Dosen FEUI dan ekonom senior INDEF

Presiden Susilo Bambang Yudhoyono mengatakan negara tidak boleh kalah ketika otoritasnya di tantang oleh kelompok domestik. Namun bagaimana dengan tantangan terhadap otoritas negara dari pihak di luar negeri?

Pertanyaan ini penting sekaii untuk ditimbang secara seksama. Sehubungan dengan dalamnya integrasi ekonomi antar negara. Kini semakin besar pula kemungkinan permasalahan di suatu negara menular (contagion effect) dan hinggap ke negara lain.

Sebesar apa fleksibilitas sebuah negara dalam mengambil tindakan? Jika terdapat bukti kuat bahwa mengikuti konvensi global justru memperparah masalah, apakah tetap akan di lakukan?

Krisis moneter tahun 97 tidak hinggap di Cina dan India yang membatasi perdagangan mata uangnya. Dampak negatif krisis yang sama tidak banyak mempengaruhi Malaysia yang menetapkan batasi capital outflow di awal krisis. Dua kebijakan tersebut bertentangan dengan konvensi global namun efektif dalam menyelamatkan ekonomi.

Sebaliknya, Indonesia menerapkan kebijakan uang ketat sehingga suku bunga naik pesat dan menutup 16 bank sesuai tuntutan IMF dalam Letter of Intent. Hasilnya krisis yang berkepanjangan.

Negara yang secara aktif dan mandiri susun kebijakan menghadapi globalisasi dan kondisi eksternal cenderung lebih tahan banting dibanding negara yang terpaksa (atau setengah terpaksa) melaksanakan langkah tertentu.

Hal ini didukung oleh studi Dani Rodrik dari Harvard University pada buku berjudul Globalization Paradox; Democracy and the Future of World Economy (2011) yang menyatakan bahwa negara yang sangat terintegrasi dengan ekonomi global dan sangat patuh mengikuti konvensi kebijakan global justru mengalami pertumbuhan lebih rendah.

Dalam studinya, wilayah Karibia dan Amerika Latin, yang dengan tekun melakukan integrasi global, menerima arus modal asing serta mengurangi peran negara, hanya tumbuh rata-rata 1 %. Jauh lebih rendah dibandingkan Asia Timur & Pasifik yang tumbuh rata-rata 6.4 % dan Asia Selatan yang tumbuh rata-rata 3.3 %.

Uni Eropa (UE) yang sedang dilanda krisis adalah contoh kelompok negara yang mendahulukan hiperglobalisasi dan prose’s demokrasi namun mengorbankan sebagian kedaulatan nasional.

Jika suatu negara ingin menjadi anggota UE harus menerapkan ribuan perundangan UE yang belum tentu menjadi prioritas dan sesuai dengan kondisi negara tersebut. Setelah menjadi anggota UE maka bila mengambil kebijakan tidak sesuai dengan beberapa prinsip dan mekanisme mendasar UE maka dapat dikenakan sanksi/denda.

Tanggung Jawab Negara

Andrew Berg dan Jonathan D. Ostry (2011), yang saat ini menjabat sebagai pimpinan Divisi Riset IMF, memperkuat bahwa terdapat hubungan yang kuat antara kesenjangan ekonomi yang rendah dan system demokratis dengan pertumbuhan ekonomi berkesinambungan. Penurunan 10 % kesenjangan berkorelasi dengan penambahan periode pertumbuhan sebesar 50 %.

Pertumbuhan yang berkesinambungan untuk periode yang lama tidak dapat bergantung pada kekayaan alam. Banyak negara di Afrika yang memiliki kandungan minyak, emas dan berlian yang tinggi namun mayoritas penduduknya miskin. Memulai pertumbuhan ekonomi jauh lebih mudah dibandingkan mempertahankannya. Menghilangkan beberapa hambatan besar di perdagangan dan investasi dapat mendorong pertumbuhan. Namun umumnya hanya berdampak beberapa tahun saja terhahadap perekonomian.

Berg dan Ostry menyimpulkan bahwa negara tidak harus memilih antara pertumbuhan dan kesetaraan ekonomi. Negara yang lebih merata akan lebih tinggi kualitas SDM-nya, lebih kuat solidaritas sosialnya dan tidak rentan terhadap krisis finansial serta politik.

Pengurangan kesenjangan tidak dapat diserahkan pada pasar. Menurut Joseph Stiglitz (2011) dari Columbia University yang juga pemenang hadiah Nobel Ekonomi, pemerintah berperan penting dalam perkuat infrastruktur, meningkatkan akses terhadap pendidikan serta sediakan jaminan sosial dan kesehatan. Pemerintah adalah aktor dominan dalam membatasi ekses negatif kapitalisme, global ataupun domestik.

Tanggung jawab ini khususnya amat nyata di Indonesia yang konstitusinya memberi amanat pemerintah untuk memajukan kesejahteraan umum dan mencerdaskan kehidupan bangsa. Negara Indonesia tidak boleh kalah.