Darmin faces tough job reforming tax office

Rendi Akhmad Witular, The Jakarta Post, Jakarta

Finance Minister Sri Mulyani Indrawati's appointment of her long-time colleague Darmin Nasution as the new director general of taxation could be seen as sign of her distrust toward most bureaucrats at the ministry.

In her efforts to reform the tax office, which has long been seen as the country's most corrupt institution, Mulyani understands well that she cannot expect much of Darmin in terms of tax knowledge, other than his integrity.

Integrity is just what Mulyani needs to fix the agency at a time when most of its troubled officials have allegedly embarked on intense lobbying with parties close to power, seeking higher positions or to at least to be spared a demotion.

Having known Darmin since the 1970s, Mulyani acknowledges his sternness towards corruption during his career as the Finance Ministry's director general of financial institutions and as chairman of the capital market supervisory agency (Bapepam).

Several of the ministry's officials recalled how Darmin, as director general of financial institutions, dared to reject a senior minister's request for collusion during the administration of former President Megawati Soekarnoputri.

The minister, who now happens to be in a more senior post, asked Darmin to issue a guarantee letter for turnpike projects handled by local private companies linked with the minister and his family.

Despite this successful history, however, Darmin was helpless in dealing with officials at Bapepam. During his term, there were no public triumphs in reforming the agency, which is also known to be infested with corruption and collusion.

The Jakarta Post, along with several other newspapers, interviewed Darmin after his inauguration last week on his plans to reform the tax agency. Here are the excerpts of the interview:

Question: What is your short-term strategy for reforming the tax office?

Answer: I still have to hold an internal discussion with my officials at the tax directorate. Reforms at the directorate are already in progress, such as improvements to the administration, offices and human resources. However, this is not enough. We have to intensify the pace of reform, while ensuring this will not disturb public services and tax collection.

There is already a blueprint, a consultant, and funds for the reform. I cannot see how this process could go unfinished. It would be simply unbelievable if we could not reform the tax office with everything we have available.

There are so many things to do. We have to cooperate more with other regulators, and with the Central Statistics Agency (BPS), in order to pool more information and data on the strength of tax revenues.

We should also benchmark every economic activity in Indonesia in comparison to its tax potency. I understand that we may not come up with the exact figures immediately, but with a more comprehensive analysis we could have a complete map of all the untapped tax resources.

Among my short-term plans is increasing coordination with the Trade Ministry, which registers all companies here. I will request that the ministry fully apply the law that requires all companies to register.

From there we would know all the companies in Indonesia, and we could expand our tax base. The key here is not raising tax rates, but increasing the number of taxpayers, which is currently very low due to the lack of data and compliance.

What efforts will you take to limit regulatory uncertainty in the tax system?

Creating certainty in the tax laws and regulations is also a priority. This is a must, in order to create mutual trust between tax officials and the businesspeople. As we all know, tax officials often allege that businesspeople are the culprit in trying to evade taxes, while the businesspeople blame tax officials for extortion and for opening the doors to collusion.

This has to stop. I will seek ways in which the huge authority given to the tax office can be used to increase services to the public, and eliminate chances for abuses of power. It will be a combination of services and strength.

How do you combat corruption at the tax office

That is part of the reform effort. We should try to patch all the leaks by selecting more professional employees with high integrity, improving tax collection procedures, and limiting direct contact between tax officials and taxpayers.

The current amount of tax collection has been deemed insufficient, and everybody knows that. I am optimistic that I can collect more taxes than this year's target. However, I cannot disclose the figure yet. Give me one or two weeks for the figures.

I will also set up a monitoring mechanism to prevent tax revenue leakage.

To limit the authority of tax officials, as you know, there will be a separation between the function of collecting taxes and that of making regulations.

Will there be any job cuts at the tax office?

There must be a reduction in the number of employees. It's already in the blueprint for reform.

How do you see the deliberation of the draft revision of tax laws at the House of Representatives?

The finance minister has made it very clear that we should guard and help smooth the process.

Do you see the need to provide tax holidays to encourage new investments?

There should be other ways to boost the economy besides giving out tax holidays. The benefit of such efforts is still unclear. I'd say I'm against this. There are other ways to help encourage investments, such as by smoothing tax procedures, providing better services and legal certainty for businesspeople, and speeding up tax claims.

What about a tax amnesty? Some businesspeople and legislators have requested it.

It is a huge issue. I cannot make any comment on this as it's very sensitive. I will have to evaluate and consider it more carefully before agreeing to this policy.
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