Supporting the Government to Improve Taxpayer Compliance

Supporting the Government to Improve Taxpayer Compliance

PPN - 10 May, 2024 18:05 WIB

The deadline for reporting the annual corporate tax return has passed. The Directorate General of Taxes reported that until the end of April 2024, taxpayers who had reported their annual tax returns amounted to 14.18 taxpayers (Kontan 2024). This number has increased by 7.15% compared to the same period last year. When broken down further, the number of taxpayers who reported this year's annual tax return consists of 13.14 million individual taxpayers and 1.04 million corporate taxpayers.

 

Although the number of taxpayers reporting annual tax returns has increased compared to last year, there has been a decline in the compliance rate. Based on the calculations of several economists, the formal compliance rate for submitting annual tax returns in 2024 is 73.59% (Kontan 2024). It means that compared to the number of taxpayers required to submit annual tax returns, only 73.59% of taxpayers have reported annual tax returns.

 

Compared to the same period of the previous year, the formal compliance rate of taxpayers has decreased. In 2023, the number of formal taxpayer compliance is 88%. The level of formal taxpayer compliance can be seen in the following chart:

 

 

The OECD divides tax compliance into four main pillars: compliance in registering as a taxpayer, compliance in reporting tax returns on time, correctly, and completely, and compliance in payment (D'Ascenzo 2011).

 

Research conducted by Carlos Silvani states that tax compliance is achievable if the tax administration system is effective. The effectiveness of tax administration is different from efficiency. A tax administration can be efficient but ineffective in its use of resources (Silvani N.d.).

 

Therefore, formal compliance, which has been measured by comparing the number of taxpayers reporting annual tax returns with taxpayers who are required to report tax returns, is only one of four types of compliance in realizing a good tax administration system.

 

The decline in the compliance rate in 2024 could be due to the increase in the number of registered taxpayers as a logical consequence of the implementation of matching NIK to NPWP. Based on the Financial Note of the 2023 Draft State Budget, the number of registered taxpayers has increased by 2.9 million in 2023. In that year, the number of registered taxpayers reached 69.1 million. In fact, in the same period as the previous year, the number of registered taxpayers amounted to 66.2 million. The government states in the RAPBN financial memorandum that the increase in the number of registered taxpayers is supported by the implementation of the NIK into NPWP (Kontan, 2023).  

 

In other words, the decline in the formal compliance rate in 2024 could be due to the increase in the registration compliance rate in the previous year. However, the government needs to be vigilant so that the decline in formal compliance does not lead to a decline in the tax-return filing compliance rate (material compliance rate) or tax payment compliance rate.

 

Therefore, there needs to be a serious effort from the government to boost formal compliance. One of the efforts that the government can take to increase formal compliance is to encourage the link between SPT reporting and services provided by the government. For example, taxpayers are asked to report the annual tax return first before utilizing incentives from the government, either motor vehicle incentives or other incentives.

 

The government has been linking the annual tax return reporting with the goods importation service. Taxpayers are required to report the annual tax return before importation. However, this policy only affects import taxpayers. A broader push is needed if the government wants to improve formal compliance.

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