Thursday, August 19, 2010

How the Indonesian Taxman Gets Rich by Selling His Services to Corporate Tax Evaders

Jakarta. How does a mid-raking civil servant manage to stash away a Rp 100 billion ($11.2 million) fortune? According to high-profile graft defendant Gayus Tambunan, it’s easy, provided you work as a corporate tax “fixer” at the state’s tax tribunal.

The former tax investigator said following his arrest in March on bribery and corruption charges that Indonesia’s corporate world was rife with companies and individuals looking to shirk their tax obligations. For officials at the tax tribunal, long considered one of Indonesia’s most corrupt bodies, it is a simple matter of cooking the books for a client and then charging a percentage on what has been saved.

The issue has been brought back to the fore after another graft suspect, Eddi Setiadi, who was arrested by the Corruption Eradication Commission (KPK), recently offered a new insight into this murky world of tax cheats when he told investigators that he had received Rp 200 million as an “annual payoff” from West Java-owned Bank Jabar Banten, in exchange for lowering its tax obligation by as much as Rp 40 billion a year.

“Tax officials manipulate data in exchange for a percentage of the amount of tax evaded by a company,” Yanuar Rizky, an independent financial analyst, told the Jakarta Globe. “Looking at Gayus’s wealth, you can estimate how much Gayus cost the state in terms of lost tax revenue.”

In the fallout from the Gayus case, the National Police arrested several tax “consultants” who allegedly channeled money to Gayus, and who are now awaiting trial at Jakarta district courts. The hearings of these consultants and of Gayus, who will be being tried at the South Jakarta District Court, are seen as key in helping authorities unravel how the so-called tax mafia operates.

The Indonesian Society for Transparency (MTI) is conducting research by interviewing taxpayers and officials from the Directorate General of Taxation inside the Finance Ministry.

In its preliminary findings, the watchdog concluded that a dire lack of transparency and supervision were driving corruption inside the tribunal.

“Because the hearings and rulings are never open to the public, it is impossible to go over them,” said Jamil Mubarok, one of the group’s researchers.

“We’ve found that court clerks can very easily manipulate a company’s tax returns. This happens often, and judges at the tribunal consistently ignore the fact that the hearings are manipulated.”

MTI’s executive director, Tirta Nugraha Mursitama, said that a major problem was that investigators looking into companies’ tax returns were not independent.

“Most of the time they’re former tax officials,” Tirta said. “And more than 90 percent of the judges at the tribunal are also retired tax officials. So the claimants, respondents and judges all know each other.”

Utama Kajo, from the Indonesian Chamber of Commerce and Industry, said the system may have been intentionally created and sustained this way by officials for the sole purpose of allowing corruption to thrive.

“Even if the courts rule that the tax office was incorrect in its calculations for the year, the tax office will just repeat the same mistake the next year. It is like an endless and costly cycle,” Utama told the Globe.

“Businesses grow tired of this because they are being fooled around with by tax officials year after year. Eventually they resort to bribery.”

Utama pointed to one company, which he refused to identify, that went bankrupt in 2007 but still received a tax bill for the 2008 financial year.

“The company filed a complaint with the tax tribunal and the tribunal later ruled the company did not have to pay taxes. The owner of the company thought the battle was over. Until 2009 comes, when the tax office again orders the company to pay taxes.”

Supreme Court Justice Imam Soebechi said the corruption stemmed from the tribunal’s peculiar position in the country’s legal system. The tribunal is administratively under the Ministry of Finance but structurally under the Supreme Court.

“There is a dispute over which institution has the right to monitor judges and the rulings that they end up making,” Imam told the Globe.

“According to the 2002 Law on Tax Tribunals, we have the power to monitor the judges. But the law also stipulates that the decision to sanction judges rests with the finance minister, with the consent of the Supreme Court.”

Tjip Ismail, the tribunal’s chairman, said the sheer volume of cases made monitoring the tax judges difficult.

“There are at least 18 new cases being heard each day and the judges are hearing anywhere from 15 to 20 cases daily. I don’t see how it is possible to monitor each and every decisions they make,” Tjip said.

Indonesia Corruption Watch’s deputy chairman, Emerson Yuntho, agreed the 2002 law needed to be strengthened if the government wanted to clean up the tribunal.

“The jurisdiction of the court is not clear and this is exploited by the tax mafia to inhibit tax collection,” Emerson told the Globe.

He highlighted a controversial decision issued by the tribunal last February to block the tax office from investigating mining company Kaltim Prima Coal.

“The only venue to challenge an investigation is the district court. An investigation is not among the type of tax dispute the tax tribunal is authorized to hear,” Emerson said.

After the Gayus case hit the headlines, then-Finance Minister Sri Mulyani Indrawati asked the KPK to verify the wealth of all 10,000 officials at the tax office. She also ordered an audit of the 134 tax cases that had been personally handled by Gayus.

Based on those forced asset declarations, police arrested the former director of tax investigations, Bahasyim Assifie, on charges of money laundering after finding more than Rp 66 billion in his bank account.


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