TAXATION IN INDONESIA

TAXATION IN INDONESIA

by : 

ENDI SUTRISNA

072645

FACULTY OF SOCIAL SCIENCE AND POLITICAL SCIENCE
  SULTAN AGENG TIRTAYASA UNIVERSITY

Tax is a contribution to the treasury of the people under the law, so be forced, with no remuneration received directly. Taxes withheld ruling on the legal norms to cover the production costs of goods and services collectively to achieve common prosperity. Government institutions that manage the state tax in Indonesia is the Directorate General of Taxation which is one of the existing directorate general under the auspices of the Ministry of Finance of the Republic of Indonesia. 

Taxes under Article 1 of Law No.28 of 2007 on general provisions and procedures of taxation is "mandatory contributions payable to the state by a private person or entity who is forced by Law, with not a direct reciprocal and used for state purposes for attain the prosperity of the people.
Tax characteristics include:
• Taxes levied under the law. This principle is in accordance with the third change of article 23A of the Constitution of 1945 states "taxes and other levies that are forced to use the state governed by law."
• Not getting reciprocal services (kontraprestasi individuals) that can be shown directly.
• Withholding tax is for general financing purposes of government in order to carry out government functions, both routine and development.
• Withholding tax can be imposed. Taxes may be imposed if the taxpayer does not meet the tax obligations and may be subject to sanction in accordance with statutory regulations.
According to Adolf Wagner, the principle of taxation is as follows.
• The principle of financial policy: the tax collected sufficient state so that it can finance or encourage all state activities
• The principle of economics: the determination of the tax object to the right
• The principle of tax fairness in general applicable without discrimination, for the same condition are treated the same.
• The principle of administration: the certainty concerning taxation, billing flexibility and tax costs.
• The principle of juridical all tax levies should be based on law.

Indonesia, the tax issue is expressly stated in Article 23 paragraph (2) of the 1945 Constitution that all taxes for state finances is set by law. To be able to construct a tax Act, required the principles or foundations that would become the basis by the state to impose a tax.
The main principle of the most frequently used by the state as a basis for a tax are:
• The principle of domicile, the state will impose a tax on the income received or accrued by a private person or entity, if for tax purposes, the individual is resident or domiciled in that country or if the body concerned is domiciled in that country.
• The principle sources, the state will impose a tax on the income received or accrued by an individual or entity only if the income tax will apply the acquired or received by an individual or body concerned of the resources in the country.
• The principle of nationality, tax basis is the citizenship status of persons or entities who earn.
The provisions contained in Act No. 10 of 1994, particularly the set of objects subject to tax and tax, it can be concluded that Indonesia is adopting the principle of domicile and the principle of source taxation system as well. Indonesia also adopted the principle of partial citizenship, in particular the provisions governing the exemption subject to individual taxation.

Tax Function
Taxes have a very important role in the life of the state, especially in the implementation of development because the tax is a source of state revenue to fund all expenses including development expenditure. Based on the above items, tax has several functions, namely:

• The budget (budgetair)
As a source of state revenue, the tax serves to finance state expenditures. To carry out routine tasks and implement the state of development, the state cost. These costs can be obtained from tax revenues. Today the tax used to finance routine expenditures such as personnel, goods purchases, maintenance, and so forth. To finance development, the money taken out of government savings, the domestic revenue routine expenses. This government savings from year to year should be increased according to development financing needs of an increasing and is mainly expected from the tax sector.

• Function set (regulerend)
Government can regulate economic growth through tax policy. With the function set, the tax could be used as a means to an end. For example in order to drive investment, both domestic and abroad, various facilities granted tax break. In order to protect domestic production, the government set a high import duty for foreign products.

• The stability
With taxes, the government has the funds to implement policies relating to the stability of prices so that inflation can be controlled, this can be done partly by way regulate the circulation of money in society, taxation, use of tax-effective and efficient.

• The redistribution of income
Tax already collected by the state will cover all the public interest, as well as to finance the construction so as to open employment opportunities, which in turn can increase people's income.

Taxation requirements
It is not easy to impose a tax on society. If too high, people will be reluctant to pay taxes. But if too low, then the development will not run because of lack of funds. In order not to cause a variety maswalah, then taxation must meet the requirements are:
• Withholding tax must be fair

Like the tax laws has the objective was to create justice in terms of tax collection. Fair in legislation and fair in its implementation.

Examples:
1. By regulating the rights and obligations of taxpayers
2. Tax imposed on every citizen who qualify as tax payers
3. Sanctions for violations of general taxes imposed in accordance with the severity of violations
• Setting the tax should be based on the Act

In accordance with Article 23 UUD 1945, which reads: "Taxes and charges for the needs of the state are regulated by the Law", there are some things that need to be considered in drafting legislation on taxes, namely:
• Withholding taxes done by the state under the Act must be guaranteed smoothness
• legal security for the taxpayers to not be treated in general
• Security will be maintained kerasahiaan law for the taxpayers
• the tax levy does not interfere with the economy

Tax collection should be sought so as not to interfere with economic conditions, both the production activity, trade, and services. Withholding tax should not disadvantage the public interest and hamper the speed of business taxes supplier community, especially small and medium communities.
• Withholding tax must be efficient
Costs incurred in the context of tax collection must be taken into account. Do not let the tax received less than the cost of these taxes. Therefore, the tax collection system should be simple and easy to implement. Thus, taxpayers will not experience difficulties in tax payments both in terms of calculation and in terms of time.
• tax collection system should be simple
How the tax collected will determine the success in tax levies. A simple system will allow taxpayers in calculating the tax burden should be financed so it will be positive providing for the taxpayers to raise awareness of tax payment. Conversely, if the complex tax collection system, people will be more reluctant to pay taxes.

Example:
• Customs stamp from 167 kinds of simplified into 2 kinds of tariff rates
• a variety of VAT rates are reduced to only one rate, namely 10%
• Number of individuals to agencies and individual income tax to be simplified to the income tax (PPh) that apply to agencies or individual (personal)

The principle of collection
The principle of taxation according to the opinion of experts

In order to achieve the goal of collecting taxes, some experts who argued about the principle of tax collection, among others:

1. According to Adam Smith in his Wealth of Nations with the teachings of the famous "The Four Maxims", the principle of taxation is as follows.
• Principle of Equality (the principle of balance with the ability or the principle of justice): collection of taxes by the state must match the abilities and income tax payers. State can not act discriminatory against the taxpayer.
• The principle of certainty (the principle of legal certainty): all tax levies should be based on the Act, so for that violation would be subject to legal sanctions.
• The principle Convinience of Payment (principle of taxation at the right time or the pleasure principle): the tax should be collected at the time is right for the taxpayer (as most good), for example, while a new taxpayer or while receiving income taxpayers receive a prize.
• Effeciency principle (the principle or the principle of economic efficiency): the cost of tax collection may sehemat endeavored not to place the tax collection cost more than the result of tax collection.

2. According W.J. Langen, the principle of taxation is as follows.
• The principle of the bear: the size of the tax collected should be based on the size of income tax payers. The higher the income the higher the tax is charged.
• The principle of benefit: the tax collected by the state should be used for activities that benefit the public interest.
• The principle of welfare: the tax collected by the state is used to improve the welfare of the people.
• The principle of equality: in the same conditions of the taxpayers with the other one should be taxed the same amount (treated equally).
• The principle of burden of the smallest: tax collection sought the smallest (minimum) if the object value dibandinglan sengan taxes. So not to burden the taxpayers.

3. According to Adolf Wagner, the principle of voting is as follows pahak.
• finalsial political principle: the state tax collected amounts that can finance memadadi or encourage all activities of the state
• The principle of economics: the determination of the tax object to be precise, for example: income tax, tax for luxury goods
• The principle of tax fairness in general applicable without discrimination, for the same condition are treated the same.
• The principle of administration: the certainty concerning taxation (when, where to pay taxes), billing flexibility (how do I pay for it) and the amount of tax costs.
• The principle of juridical all tax levies should be based on law.

Tax Basis
In order for the state to impose a tax to its citizens or to an individual or other entity that is not its citizens, but has links with that country, of course there should be provisions that govern them. For example in Indonesia, as expressly stated in Article 23 paragraph (2) of the Constitution of 1945 that all state taxes to finance set by law. To be able to construct a tax laws, necessary principles or foundations that would become the basis by the state to impose a tax.

There are some principles that can be used by the state as a principle in determining their authority to impose a tax, especially for the imposition of income tax. The main principle of the most frequently used by the state as a basis for a tax are:

1. The principle of domicile or residence principle is also called (domicile / residence principle), based on this principle the state would impose a tax on the income received or accrued by a private person or entity, if for tax purposes, the individual is a resident (resident) or domiciled in the country or if the body concerned is domiciled in the country. In this regard, no question of which income tax will apply it originated. That is why the countries that adopt this principle, the taxation system for its residents will incorporate the principle of domicile (residence) with the concept of taxation on income earned both in that country as well as revenue earned in foreign countries (world-wide income concept) .

2. The principle sources, the State will adopt the principle of source to tax an income received or accrued by an individual or entity only if the income tax will apply the acquired or received by an individual or body concerned of the resources in the country. In this principle, not a question of who and what the status of the person or entity that derives income which form the basis for packaging ¬ tax naan is the tax object arising or originating from that country. Example: Foreign workers working in Indonesia is of the income earned in Indonesia will be taxed by the government of Indonesia.

3. The principle of nationality or citizenship or principle called the principle of citizenship (nationality / citizenship principle). In this principle, the tax basis is the citizenship status of persons or entities who earn. Based on this principle, it is not an issue from which income tax will apply from. Just as in the principle of domicile, taxation system based on the principle of nationalities was conducted in a way incorporate the principle of citizenship ¬ connected with the concept of tax imposition on the world wide income.

There are some basic differences between the principle of domicile or residence and the principle of nationality or citizenship on the one hand, the principle source of the other party. First, in both the first-mentioned principles, the criteria used as basis states the authority to tax is the status of a subject to be taxed, ie whether the respective status as resident or domiciled (in the principle of domicile) or status as citizens (the principle of nationality) . Here, the origin of which is the object of income tax is not so important. Meanwhile, on the principle source, which became the foundation is the status of the object, ie whether the object to be taxed comes from that country or not. Status of the person or entity who earn or receive income not so important. Second, in both the first-mentioned principle, the tax will apply to income derived on the go (world-wide income), whereas the principle source of income may be taxed only on income-limited income derived from sources that have in the country concerned.

Most countries, not only adopt one principle alone, but to adopt more than one principle, the principle of domicile can be combined with the principle sources, combined with the principle of nationality principle source, even combined all three.

Indonesia, the provisions contained in Law No. 7 of 1983, as last amended by Act No. 10 of 1994, particularly the set of objects subject to tax and tax, it can be concluded that Indonesia is adopting the principle of domicile and the principle source of both in the tax system. Indonesia also adopted the principle of partial citizenship, in particular the provisions governing the exemption subject to individual taxation.
Japan, for example, for individuals who are resident (resident individual) using the principle of domicile, which according to this principle a Japanese population is obligated to pay income tax on all earned income, whether earned in Japan or outside Japan. Meanwhile, for non-residents (non-resident) Japan, and agencies of foreign businesses are obliged to pay income tax on any income derived from sources in Japan.
Australia, for all state owned enterprises and private sector based in Australia, subject to tax on all income derived from all sources of income. ¬ cement while it was, for foreign business entities, is taxed only on income from sources in Australia.

Theory collection
According to R. Brotodiharjo Santoso SH, in his book Introduction to the Tax Law, there are some underlying theory of taxation, namely:
1. The theory of insurance, according to this theory, the state has a duty to protect its citizens from both the safety of all interests and safety of his soul treasures. For the protection of such fees as required in the agreement of deiperlukan insurance premium payment. This tax payment is considered as premium payments to the state. Banyajk opposed to this theory because the state should not be equated with insurance companies.
2. The theory of interest, according to this theory, basic taxation is the interest of each citizen. Including interests in protecting life and property. The higher level of protection interests, the higher the tax to be paid. Much opposed to this theory, because the fact that the level of protection of the interests of the poor more than rich people. There was social security protection, health, and others. Even very poor people exempt from the tax burden.

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