Hello, is there anything we can help?
Jakarta, Ideatax -- Did you know that there is another parameter used to measure tax performance aside from the tax ratio? It is called the tax gap. The tax gap is defined as the difference between the amount of tax that, in theory, should be paid and the amount of tax paid (Subroto, 2020). Meanwhile, the IRS (2020) defines the tax gap as the difference between the amount of tax owed and the amount paid by the taxpayer promptly.
There are several reasons behind the tax gap. First, taxpayers make mistakes in fulfilling their tax obligations, either intentionally or unintentionally. Second, taxpayers are not compliant in submitting annual tax returns, where the non-compliance causes the tax that should be paid and reported to be missing. Third, there are differences in legal interpretation, tax planning, and tax avoidance. All of the above reasons can cause a mismatch between the tax that should be paid by the taxpayer and the tax that should be payable.
There are various methods for calculating the tax gap. The top-up method is used by collecting independent external data to estimate the total consumption of taxable goods. The estimation of total consumption is important to calculate the theoretical tax liability. Once the total liability is known, the tax authority can calculate the tax gap by subtracting the total theoretical liability from the actual tax payment (GOV.UK, 2023).
Another method used in calculating the tax gap is the bottom-up method. Unlike the top-up method, the bottom-up method aims to collect data from taxpayers to calculate the amount of the tax gap. There are at least seven techniques that can be used in the bottom-up method, including random inquiry programs, statistical methods, population surveys, management information, risk registers, data extracted from accounting systems, and databases or other systems used to manage HMRC's business.
In Indonesia, the tax gap is calculated by collecting data from both internal and external sources of the Directorate General of Taxes to be aggregated and calculated. Along with the development of technology, the tax gap is calculated using statistical methods to obtain an accurate tax gap. Moreover, during the implementation of the core tax system in June 2024, data on tax potential and revenue from agencies, institutions, and associations will be automatically sent to DGT to be processed into tax gap data.
Notably, the tax gap in Indonesia in 2019 was 8.5%. This amount is much higher than the benchmark value set by the OECD. In general, the OECD states that the tax on middle-income countries is 3.5% (Bisnis.com, 2021). This can be interpreted as meaning that the tax policies taken by the tax authorities in Indonesia are not optimal, so there are still gaps for taxpayers to carry out tax evasion and tax avoidance. In addition, the high tax gap in Indonesia can also mean that the capacity of tax administration in Indonesia is not optimal. The suboptimal capacity of the tax administration has not yet served all taxpayers, which in turn has led to low compliance in reporting annual and periodic tax returns.
To reduce the tax gap to a normal level that is relatively similar to the global level, there are several things that the government can do. First, the government needs to improve the tax administration system. As is known, the government is currently carrying out volume III of tax reform, marked by the implementation of the renewal of the tax administration system (PSIAP). The renewal of the tax administration system through the core tax system is expected to boost the tax ratio and reduce the tax gap through the ease of the tax administration system, automatic information exchange, and database updating. The Minister of Finance of the Republic of Indonesia, Sri Mulyani Indrawati, stated that this tax reform can reduce the tax gap to normal levels (Bisnis.com, 2021).
References
Bisnis.com. (2021, Juni 28). Sri Mulyani: Reformasi Pajak Dapat Turunkan Tax Gap ke Level Normal. Retrieved from Bisnis Indonesia: https://ekonomi.bisnis.com/read/20210628/259/1410747/sri-mulyani-reformasi-pajak-dapat-turunkan-tax-gap-ke-level-normal
IRS. (2020, January 20). IRS: The Tax Gap. Retrieved from IRS: https://www.irs.gov/statistics/irs-the-tax-gap
Subroto, G. (2020, Januari 9). Memahami TAX GAP. Retrieved from BPPK: https://bppk.kemenkeu.go.id/balai-diklat-keuangan-denpasar/artikel/memahami-tax-gap-956870#:~:text=Tax%20Gap%20diartikan%20sebagai%20perbedaan,banyak%20sekali%20yang%20menjadi%20penyebabnya.
