The Large Taxpayer Initiative

B. The Large Taxpayer Initiative

This initiative involved the creation of a special large taxpayer office (LTO) within the DGT to administer the relatively small number of taxpayers who collectively accounted for the largest portion of tax collections. The LTO opened in July 2002 at which time it administered 200 large enterprises and their 300 branches who contributed 23 percent of total tax collections. In 2004, the LTO was expanded by an additional 100 large corporations, which brought LTO tax receipts up to 27 percent of total DGT collections.

The large taxpayer initiative offered important advantages for Indonesia’s fiscal adjustment program through its potential for: (1) increasing tax revenue by achieving tight control over a large portion of the tax base and (2) improving the investment climate by providing large taxpayers, who were also large investors, with high quality services and introducing a number of measures to curb malfeasance by tax officers. In addition, the creation of an LTO was viewed as an important stepping stone in modernizing the DGT by providing a controlled environment for testing a wide range of new tax administration processes prior to their roll-out to other tax offices.

The LTO initiative encompassed several major reforms. The LTO was re-organized into units based on tax administration function (e.g., taxpayer services, audit, arrears collection), which facilitated the development of specialized skills among staff. Service to large businesses was improved through the creation of a cadre of service-oriented tax officers who were trained in the complex tax law issues that often arise when dealing with large

taxpayers. 18 Refunds were accelerated through the introduction of a “gold-card” program

18 A key feature of the LTO’s taxpayer services function was the assignment of an “account representative” (AR) officer to each large taxpayer. For his assigned set of large taxpayers, the AR served as the first point of

contact into the LTO for answering questions on the tax law, straightening out problems involving a taxpayer’s account with the DGT, and following up on such issues as delays in issuing refunds. The AR also closely monitored the taxpayer’s filing and payment obligations, and was authorized to undertake some initial enforcement actions such as calling a taxpayer who filed a late tax return or did not pay tax on time.

which simplified the refund process for highly compliant businesses. Enforcement was strengthened through the quick identification and rapid treatment of taxpayers who filed their tax returns late, paid their taxes late, or committed other forms of noncompliance. Perhaps most notably, the LTO provided for a careful vetting of staff, substantially higher wages, a widely publicized code of conduct, and improved IT systems and office facilities. This quality work environment was crucial in promoting productivity and noncorrupt behavior among LTO staff.

The LTO reforms were well implemented and produced excellent results. As described in section VI, the growth rate of LTO tax collections substantially exceeded that for the rest of the DGT. At the same time, large taxpayers reported a high degree of satisfaction with the LTO’s services, the integrity of its staff, and the measures taken to accelerate refunds. Importantly, the new tax administration features that were introduced at the LTO would later become the standard for the DGT and were gradually rolled-out to additional field offices.