Data Input and Output, and Data Analysis

2.2. Data Input and Output, and Data Analysis

As indicated in Figure 5, the realization of tax revenues in 1985 increased drastically compared with that of 1980 due to the simultaneous occurrence of tax reforms in 1984. Apart from that, the government was pushing its revenues from fossil oil and natural gas sectors so that they were more dominating compared with that of tax revenues. The realization of tax revenues in 2012 compared with that of 1980 increased almost 100 times from 9.91 trillion IDR to 983.17 trillion IDR. In other words, tax revenue plays a very important role to support national development and public services, especially on the era Indonesia when the revenues from fossil oil and natural gas was no longer as the main sources.

Government revenue from tax sources is divided into two categories, excluding oil and gas tax, and including oil and gas tax. By excluding oil and gas, the revenue has grown by an average of 14%, while the tax revenues including oil and gas on average grew by 16%. The spectacular growth of tax revenue either including or excluding oil and gas occurred in 2008 when the tax revenue growth rate reached 28%. However, a year later there was a dramatic decrease in tax revenues including oil and gas. The decrease in tax revenue in this category was mainly influenced by the global economic crisis which initially weakened the economies of some European countries and subsequently created the global economic crisis. The other factor was the decline in oil and gas production and the strengthening of Indonesia as a net importer country. However, categories of tax revenue excluding oil and gas have experienced a remarkable improvement over about 40% in 2009 onward.

(Trillion Rupiah)

1980 1985 1990 1995 2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 National Revenue

Tax Revenue

NonTax Revenue

Grant

Figure 5. National Revenue from 1980 to 2013

Source: Directorate General Tax, MOF, 2013 [9].

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The ratio of tax towards Gross Domestic Product (GDP) is the comparison between the realization of tax revenues and national revenues. The ratio referred to basically shows the amount of tax revenues collected from each IDR of the national revenues. This ratio is usually used as one of the indicators to assess the performance of tax revenues considering the fact that the national revenues showing the national outputs is the indicator of public welfare. This increased ratio indicated the success of the tax collection process because it showed the increasing IDR value that was collected as tax revenue from each IDR of the national outputs considering that the tax revenues were not fully managed by the DGT. Some of the taxes are now under the authority of the regions such as property tax, restaurant tax, entertainment tax, and others.

By employing the productivity model developed by Dunleavy and Carrera (2011), we can determine the productivity level of public sector activities. [4] This model is widely used for measuring the productivity of the public sector in the UK. There are several models developed to measure productivity. With the availability of data on the DGT, the model used is quite appropriate:

Deflated (The Amount of Tax Collected) FTE productivity =

..... (formula 2.1)

Number of full-time equivalent staff

Here, the input is the number of full time employment (FTE), and the output is the amount of collected taxes (either including or excluding oil and mining tax). Apart from that, by considering the inflation aspect as a deflator, the real amount of collected taxes can also

be seen. By using the data presented in Table 2, it can describe the level of productivity from 2005 to 2013. This data was presented by Dr. A Fuad Rahmany (Director General of Tax, MOF) on the National Conference “Strengthening Political Taxation for Supporting National Competitiveness” (Penguatan Politik Perpajakan Untuk Mendukung Daya Saing Nasional), Jakarta, 21 November 2013 [10].

Table 2. Income Tax, DGT Budget, and Number of Employees

Number of Year

Tax Revenue

DGT Budget

Employees Productivity IDR)

Expenditure

(million IDR)

(person)

NA NA 2005**

31,151 18.33 (continued on next page)

Measuring Public-sector Productivity in Selected Asian Countries (continued from previous page)

30,762 32.35 Source: *) Data of Expenditure DG Tax from 2002 to 2008 comes from the Study of Effectiveness of Administrative

Taxation (Kajian Organisasi Administrasi Perpajakan Yang Efektif), page 38 [9].

By using Dunleavy’s model 2.1, the DGT level of productivity from 2005 to 2013 can

be explained. Table 2 shows that the DGT level of productivity did not experience a significant increase from time to time. The average of FTE Productivity was 19.34.

Subsequently since 2005 to 2009, the DGT level of productivity was below the annual average rate. In 2009 with the increase in the workforce, in fact it did not experience any increase. Instead, it experienced a decrease so that the level of productivity was descended to 1.22. However, in 2010 it began to recover. In fact, it exceeded the achievement of 2008. Since 2011, the DGT’s FTE productivity had experienced a significant increase, and it reached its peak in 2013, i.e., 32.35. The peak was reflected in the amount of collected taxes, that is, 995,200, with a decreasing workforce down to 554 due to retirement and other reasons. It is true that this increase in productivity is supported by the adoption of an e-taxation program as well as simplifying procedures that were initially started to effectively improve the performance of tax services.

If seen from the trend of productivity, it is true that there is a tendency of an increase, but if compared with that of tax achievement targets, it can be said that it is not yet optimal. Referring to available human resources (2013), in fact, there are many potentially important taxes that have not yet optimally been explored. The main handicap is the number of tax officers that are not yet balanced with the targets of explored taxes. In fact, in their perspective, the ratio between tax targets and currently available tax officers has reached a maximum level. With this condition, whatever strategy that is used will not be able to increase the amount of tax revenues anymore. Therefore, this leaves no alternative for the recommendation but to increase the number of personnel. However, this alternative is impeded by the position of the DGT institution as one of the work units within the Ministry of Finance so that all matters related with the human resource policy, budget, and programs must first be approved by the Ministry of Finance.

From the research findings conducted by DGT research team (2013) [9], they recom- mended to conduct DGT organizational restructuring through several options. One of them was building a more autonomous organization with particular reference to human

Indonesia

resources, budget and programs. Institutional wise it remains within The Ministry of Finance, but not under the Ministry of Finance verse instead it is under the Minister of Finance. This means that the Director General is accountably responsible directly to the Minister of Finance not to the Secretary General. With this new position, the Directorate General will have greater level of discretion.

Through using other data that separate oil tax revenues and also considering GDP deflator, it can be determined that deflated tax revenue baseline in this case is in 2006. GDP deflator can also be used to determine employee index. In the end, it can be determined the FTE productivity that consider the GDP deflator aspect as shown in Table 3.

Table 3. Tax Revenue (Excluding Oil and Gas) and Employees Index

Deflated

Tax

Employees (exlude oil

Revenue GDP

Tax

Index

Employees Index (2006 deflator * FTE and Gas)

Revenue

Baseline in

103.709 167.906 * Source: http://data.worldbank.org/indicator/NY.GDP.DEFL.ZS?page=1 [11]

FTE since 2006 as the baseline until 2012 experienced a significant growth trend. The significant increase took place in 2008, i.e., 19. This increase of productivity was caused by an increasing amount of tax revenues that was greater than that of the increase in the number of personnel. In average the annual increase was eight–nine points.

Measuring Public-sector Productivity in Selected Asian Countries

The Projection of Tax Revenue

Brondolo et. al. (2008) formulated that the increase in tax revenue and tax ratio resulted from a combination of an increase in tax revenues on the basis of the voluntary payments and an increase in enforced collections [12]. In the short term, enforced collection can generate growth of tax revenue. However, for the medium and long term, a certain strategy will be required to increase revenues on the basis of voluntary payment. In practice in Indonesia, the growth of tax revenues is the combination between the growth of tax revenues that is in line with the progress of economic growth (buoyancy) and growth revenue based on an increase in enforced collections both in a form of extensification and intensification. Many of the latest literature have not explained the analysis of tax revenues in detail based on the two approaches above, therefore this study attempted to describe the phenomena of non-buoyancy and buoyancy of tax revenues. This is necessary to emphasize the need for maximum effort to boost the increase in tax growth of non-buoyancy by allocating resources in control and law enforcement. This process requires special support in terms of organizational flexibility, procedures, and human resources in achieving the objectives of increasing the effectiveness of the tax adminis- tration authorities.

Table 4. Growth of Tax Revenues from 2009–2012

Growth (%) Revenue

2009- 2010- 2011- 2010

Income Tax Revenues - non

177,800 370,270 443,888 249,764 11 16 9 buoyancy*)

Revenues 306,937 285221 339,955 503,204 18 21 14 - buoyancy**)

Total Revenues ***) (without Oil

484,865 667,604 787,841 753,729 15 20.6 12.1 and Gas Revenues)

Note: Data for 2010 and 2011 come from the Ministry of Finance, Reporting of Financial Report by the DG Tax (Audited). Source: Directorate General Tax, MOF, 2013 [9].

Note: 1. Non-buoyancy revenues consists of: Income Tax articles 21, 22 besides import, 25, and 29. 2. Buoyancy revenues consist of: PPN, Income Tax revenues article 22 Import, articles 23, 26, Final, Property tax,

and PTLL. *)

Tax buoyancy (2009–2012) is 0.836; **)

Tax buoyancy (2009–2012) is 1.327; ***)

Tax buoyancy (2009–2012) is 1.146.

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In general, natural growth remains to rely on buoyancy tax than non-buoyancy. In fact the expected growth of revenues (based on the previous analysis) is clearly predicted to increase sharply. In the current condition where the national growth of control and law enforcement is still low, it tends to decline. These impacts are on the decrease in the growth of non-buoyancy revenues within the last four year period. For that reason, this study underlines that there is no other choice (including to merely reach natural growth), but to make extra effort particularly in control and law enforcement, which can be done through the support of granting wider autonomy to tax administration authorities.

The tax ratio gradually increased. However, the current development is now relatively stagnant at levels of 11–13%. This figure is relatively low compared with that of other

countries, particularly the US, UK, and other OECD countries. This low tax ratio that is generated by the formula that is used to calculate the tax ratio is not the same with that used by other countries. Almost all countries in the world use the formula of tax revenues divided by the national revenues. The tax revenues include local tax, royalties from natural resource revenues, whereas in Indonesia they excluded them.

From historical data, we further propose a hypothesis of an estimated tax ratio for 2015–2018 and an estimated gap of tax ratio with other countries to determine future projection levels in an effort of improving the performance of tax administration authorities to enable them to compete and to be in line with other countries in the world.

Table 5. Projection of Tax Ratio and Gap Tax Ratio (Based on Trend Figure)

In percentage (%)

A Benchmarking Countries 1 OECD

19.87 19.76 19.65 19.54 2 ASEAN

Estimated tax Ratio

13.83 13.81 13.79 13.77 3 Emerging Market

Estimated tax Ratio

16.06 16.29 16.51 16.74 4 Latin America

Estimated tax Ratio

15.65 15.91 16.18 16.45 5 All Countries

Estimated tax Ratio

15.99 16.04 16.09 16.13 6 Indonesia

Estimated tax Ratio

Estimated tax Ratio

Contrasting Gap of Tax B Ratio

(continued on next page)

Measuring Public-sector Productivity in Selected Asian Countries (continued from previous page)

1 Indonesia vs OECD

7.88 7.73 7.58 7.43 2 Indonesia vs ASEAN

Est. Gap of Tax Ratio

1.85 1.78 1.72 1.66 Indonesia vs Emerging

Est. Gap of Tax Ratio

3 Market

4.08 4.26 4.44 4.62 4 Indonesia vs Latin America Est. Gap of Tax Ratio

Est. Gap of Tax Ratio

3.67 3.89 4.11 4.34 5 Indonesia vs All Countries

4.01 4.01 4.01 4.02 Source: Directorate General Tax, MOF, 2013 [9].

Est. Gap of Tax Ratio

Based on the above data to project several years ahead of the trend of a gap of tax ratio with other countries in the world, generally the average is 4% (except for the gap with OECD and ASEAN countries). This becomes the assumption for the next part to determine the extraordinary effort for tax income growth that is supported by a large delegation of authorities to the tax administration authorities.