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Chapter - 8
Indonesia

1.    Introduction

1.1.    Development in Indonesia is based on the Basic Policy Guidelines (GBHN) established by the Deliberative People's Assembly. The objectives of development are to boost economic growth and to increase the people's welfare. Development activities are implemented in sectors, sub-sectors, programs and projects within the ministries and other government institutions.

1.2.    The allocation of such activities is determined by the House of Representatives legislating the State Revenue and Expenditure Budget (APBN) annually.

1.3.    The sources of revenue in the Revenue and Expenditure Budget are set out in the table below.

Contributions of Revenue Resources to Revenue and Expenditure Budget from 1994/1995 to 1996/1997

(in Billions of Rupiah (Exchange rate for different currencies vis-a-vis the US $ as on 31st March, 1997 are indicated in Appendix 1 (Pg.475)))

1.4.    Development calls for an extensive investment, but its execution must be self-sustaining. Foreign aid (development revenue) is meant to be supplementary. Therefore, it takes an immense effort to mobilise revenues, especially from tax, so that the portion of foreign aid and others as a supplement may be minimised, and ultimately development must be carried out intensively and extensively. The tax mobilisation as shown above increased by 12.4% from 1994/95 to 1995/96 and by 24.35% from 1995/96 to 1996/97.

1.5.    It is obvious that the contribution of tax to revenue has tended to increase. Tax is a potential source of revenue and the government of Indonesia expects it to keep increasing in the future.

1.6.    Thorough and continuous evaluation of tax revenue management is required to maintain, and improve, good administration and to avoid internal as well as external fraud.

2.    Revenue from the tax sector

2.1.    The fiscal policy of the Indonesian Government is a macro- economic policy which aims to be:

1. the means of economic stabilisation and public income distribution; and
2. the means of raising state revenue.

2.2.    In 1994, the tax system in Indonesia underwent a significant change. The calculation and payment systems were changed to optimise the state revenue and to promote better understanding of the system. The significant changes were:

1. Change from a system of official-assessment to one of self- assessment; and
2. Simplification of the tax laws and rates.

3.    Tax revenue procedure

3.1.    Tax Regulations

3.1.1.    The change in the tax system started with the new tax laws. They can be classified generally in the following way:

(a)    Laws made by the central government

1)    General provisions and procedures of tax collection

2)    Technical provisions of each tax such as Income Tax, Value Added Tax, Value Added Tax for Luxurious Goods, Stamp Duty, Property Tax, Customs and Excise

(b)    Laws made by the local government

Other retributions as stipulated by the local government (known as local tax and retribution).

3.1.2.    The regulations relating to the above classification are made as laws and the subordinate provisions are made for technical guidance.

4.    The Organisation of tax institutions

4.1.    Some related institutions under the Ministry of Treasury are involved in tax activities to obtain efficiency and effectiveness of tax revenue. They are:

• Tax Information Office: gives information about tax to the public
• Tax Payer: the individual or entity
• Tax Service Office: directly administers the taxpayer's rights and obligations
• Bank: receives the tax payment
• Treasury Office: receives and administers government revenue
• Tax Court Assembly: the institution which makes decisions about the taxpayer's disputes and appeals.

The Tax System in Indonesia

5.    Control by the BEPEKA over tax revenue

5.1.    The BEPEKA has the right to audit tax revenue. The legal basis for this lies in two sources. One is the BEPEKA audit mandate defined in Article 23 Paragraph 5 of the 1945 Constitution of the Republic of Indonesia which reads as follows: 'In order to achieve accountability concerning State Finance there shall be a Supreme Audit Board, the regulation of which shall be carried out by law. The audit result shall be made known to Parliament'.

5.2.    The second basis is the 1973 Law Number 5 concerning the BEPEKA, which states: 'The BEPEKA is responsible for auditing the accountability of Government regarding state funds as well being responsible for auditing the realisation of all state budget revenues and expenditures".

5.3.    The methods and procedures are made in accordance with audit norms and existing tax regulations. The main purpose of this audit is to improve government performance in the efficiency and effectiveness of tax collection.

a.    Audit objectives

5.4.    The audit conducted by the BEPEKA has the following objectives:

• To assess the fairness of the revenue budget and the report of tax actual revenues;
• To ascertain the existence of sound administration that complies to laws and regulations; and
• To assess the application of tax returns and penalties.

b.    audit procedures

5.5.    The audit procedure covers the following:

• Evaluating internal controls by:-
• reviewing internal audit reports
• undertaking questionnaires, sampling document completeness, tracing overall procedures starting from the evidence and going through to the final report
• reviewing and evaluating laws and regulations to indicate fraud, and
• reviewing for problems in the administration of the tax system.
• The conduct of the audit has the following stages:-
• Audits on planning, realisation of tax income and its reporting by:
• Evaluating the proposed plan/budget of tax income
• Undertaking comparative analysis; by comparing budget and actual amounts
• Conducting samples to test the completeness of tax supporting documents
• Cross-checking the reports from other hierarchical units.
• Conducting periodic and annual verification by:
• Verification of the periodic tax report
• Such activity is aimed to monitor the number of tax payers who submit their tax reports, including the timeliness and implementation of fines and charges for tardy submissions, if any.
• Evaluating the progress of the tax reports submitted by registered taxpayers
• Assessing the implementation of fines and charges for tardy submissions by registered tax payers.
• Verification of periodical payment, in order to
• assess tax payer compliance in making periodic payments
• evaluate the accuracy of fines and charges for tardy payments.
• Monitoring periodic and annual tax reports

5.6.    This involves conducting comparative analysis by comparing the number tax reports sent to the tax payer with the number of tax reports submitted by the tax payer.

• Collection activity
• Evaluating the settlement of tax reprimands and fines on late settlements.
• Evaluating and aging tax receivables which are overdue more than five years and calling for write-off.
• Audit on the settlement of tax disputes
• This involves evaluating the settlement of tax disputes based on the institution's authority; the timeliness and the nature of the solution of the disputes and, by sampling methods, calculating the state's loss due to the disputes.
• Audit on the tax restitution settlement
• Review the institutions' authority to settle the restitution based on existing laws and regulations
• Conduct a sample test to assess the timeliness of the settlement, the completeness of the checking of the approved restitution and its response and whether the tax payer's debt has been calculated in the restitution.
• Follow-up audits on previous audit reports
• Audits to verify and monitor the activities of the auditee concerning previous audit reports from internal audit institutions as well as the BEPEKA.

c.    Audit result

5.7.    The results of audits conducted by the BEPEKA are expressed in reports that contain:

1)    'Background' which includes the scope of the audit
2)    'Current status' referring to current conditions in the implementation of activities related with tax revenues
3)    'Criteria' referring to existing laws and regulations relevant to the current status
4)    'Impact' referring to the difference between the current status and the expected status
5)    'Cause' referring to the matters that have triggered the difference
6)    'The Institution Comment' referring to the institution's or authority's opinion about the finding
7)    'Conclusion and Recommendation'.

6.    The Audit Report Recipients

6.1.    The findings of the BEPEKA are submitted to the following authorities:

1)    The House of Representatives
2)    Minister of Finance
3)    Development and Finance Supervisory Board
4)    Inspectorate General of the Ministry of Finance
b    Directorate General of Tax Revenue.

7.    Matters To Ponder

7.1.    There are other matters for consideration:

1)    The existing law allows the BEPEKA, with prior consent of government, to examine the tax levy calculation made by the tax payer.
2)    The integrity of the tax payer and the internal audit of the tax office is an important but uncontrollable variable for the BEPEKA. Because of the self-assessment system, the integrity of these parties has a significant effect on the methods and sample size required in the BEPEKA audit.
3)    There are limitations in both the human resource quantity and quality in the BEPEKA, especially in terms of adequate knowledge of the tax system.