Organizatinal and Tax Administration Strategies for Micro and Small Enterprises

1. Ministry of Finance - RI Directorate General of Taxes Organizatinal and Tax Administration Strategies for Micro and Small Enterprises Case of Indonesia Directorate General of Taxes Ministry of Finance, the Republic of Indonesia

2. Tax Administration Modernization • ORGANIZATION • BUSINESS PROCESS - INFORMATION AND COMMUNICATION TECHNOLOGY • HUMAN RESOURCES MANAGEMENT

3. REFORM in Organizational Structure (2002 – 2008) • CONCEPT : • Debureaucratization • Customer Oriented – Account Representative • Functional based Organizational Structure • Taxpayer Segmentation based on size • Tax Audit and Objection are strictly separated • New function of Internal Audit and Change Program • Account Representative to help Taxpayers: Consultation and Compliance Monitoring • IMPLEMENTATION : • Establishment Of Large Taxpayers Office (LTO), Medium Taxpayers Office (MTO), and Taxpayers Office (STO) • Restructuring Of Headquarter • Establishment Of Data Processing Center (DPC)

4. Improvement in Business Process • CONCEPT : • Information and Communication Technology oriented • Simple and Easy to understand • Cost Effective • Built-in Control • IMPLEMENTATION : • IT System (SIDJP) Improvement : Merging of all different systems and database (Property Tax) • Case Management and Workflow System for Administration and Service • e-System, e-Filing, e-SPT, e-Payment • Complaint Center, Call Center, and Non Filers Activation Center • Integrated supporting information systems : Personnel, Finance, Assets • Risk Analysis for Law Enforcement Programs : Tax Audit, Collection, Investigation • Tax Forms Improvement and Simplification • Improvement in SOPs and Reporting System

5. REFORM in Human Resources Management • CONCEPT : • Compentence Based HR System • ICT Utilization • Customer Driven • Performance Management • IMPLEMENTATION : • Development of HR Information System • Job Grading for Rotation and Promotion • Competency Mapping • Code of Conduct • Additional allowance for Modern Offices • Staff Training/Upgrading with Adult Learning Principles • Job Evaluation and Analysis • Development of Performance Management System • Improvement on Systems of Career Plans, Rotation and Promotion, and Remuneration

6. 2008 129 STO Outside Java and Bali ` Dec-2006 Head Office, MTO in province’s capital cities (13) 2007 156 STO Java and Bali Dec-2005 MTO Batam May-2006 MTO Denpasar, MTO Tangerang, MTO Bekasi, MTO Pekanbaru, Dec-2004 STO at Central Jakarta Juni-2005 STO at Central Jakarta (14) Agt-2004 Foreign Investment (2) PE & Expatriate (2) MTO Central Jakarta July-2002 LTO (2) Oct-2004 Foreign Investment (2) Foreign Investment (2) Listed Companies Dec-2003 SOE Tax Office DGT Modernization Milestone

7. Small Taxpayers Office

8. Micro and Small Enterprises In Indonesia • Hard to Tax • Large Numbers: most taxpayers, least revenue • High Churn Rates: • many new businesses created, some fail, a few grow • Informal structures – family based, sole proprietorships, partnerships • Accounting capabilities in general weak • but they surely know their cash and profit situation • Many may be outside the tax net due to challenges in complying with tax and other government regulations • Hit and run because no Single Identity Number system implemented yet

9. Small and Medium Enterprises In Indonesia ROLE of MSEs Average of GDP Table (2006-2008)

10. Background of STO • Indonesian Tax Revenue structure shows that (large) Corporate Taxpayers are still the largest contribution • DGT has decided to put more attention to individual and corporate taxpayers • Accordingly, District Offices should be empowered, through the implementation of STOs

11. Characteristics of STO • Merger of 3 existing tax offices : Tax District Office, Tax Audit Office, and Property Tax Office • All Taxes – administer Income Tax, VAT, & Property Tax • Both () Corporate and Individual taxpayers • Thousands of taxpayers for each office • Tax payment per taxpayer is small • Territorial concept (AR is responsible for a specific region) • Section of Tax Extensification – number of taxpayers is very likely to increase all the time

12. STO Taxpayer Profile • By definition an STO administer a population of taxpayers. • Segmentation and profiling based on region or block. • Profiling provides some basic insights to identify risks and options for treatment of those risks

13. STO Business Approach • A key foundation for success in self assessment system is a voluntary compliance of tax payers, then STO helps taxpayers understand their rights and obligations under the tax law. • STO should have a credible capacity to deter, detect, and deal with non compliance based on a good database system. • Balancing between services and enforcement is highly desirable.

14. Compliance Strategies Approach • Tax campaigns, creating an awareness of tax obligations and the reasons why tax is payable. • Providing a wide range of informative tax publications. • Educational programs. • Launching a website and call center, providing easy access for tax information.

15. Compliance Strategies Focus - 1 • Ensuring correct disclosure is made. • Making early contact with taxpayers who have failed to submit returns or make payment of their taxes. • Building a component that focuses on tracing taxpayers who we have lost contact with. • Crosschecking third party information with our database, to ensure correct disclosure.

16. Compliance Strategies Focus - 2 • Building closer relationships through industry bodies and associations and Working more closely with tax professionals and bookkeepers active in this sector. • Working with accountants and tax agents who assist this group in the preparation of their tax returns. • Improve coordination with local government and other government institutions.

17. Compliance Strategies Focus - 2 • Referring fraud cases to the Courts for prosecution. • Identifying and auditing taxpayers whose life styles do not link to the amount of income declared. • Introducing audit projects that focus on high profile individuals whose tax affairs appear not to be in order. • Introducing improved risk analysis across the region. • Building public trust and confidence to the tax offices.

18. CONCLUSION • The strategy of STO with its business model which is based on improving services and enforcement: • Ensuring the SME Taxpayers have adequate information and supporting tax payers need to comply with their tax obligation • Identifying high risk practices of being non-compliant • Alerting tax payers to these high risk practices • Taking firm action against those taxpayers who deliberately or persistently fail to comply.

19. Challenges Ahead • Information & Communication Technology development • Human Resource constraint – quantitative and qualitative • Changing culture and attitude is difficult and often takes long time • Government initiative to use Single Identity Number • For optimal results, taxation reform should be accompanied by reform in ALL other institutions.

20. Ministry of Finance - RI Directorate General of Taxes Thank You