Page 5 - Working Paper (Asymmetric Information & Its Impact On Tax Compliance Cost In Indonesia)
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DDTC Working Paper 0113  DDTC Working Paper 0113

                   regulations that are not known by taxpayers also         Figure 2 - Interaction model layer 1
                   contributes to asymmetric information. There are
                   at least three factors that influence the relationship
                   between regulations and asymmetric information:
                   i.  Regulations  that  are  drafted  in  such  way  that
                      arises multi-interpretations by both taxpayers
                      and  tax  authorities  alike.  Not  clearly  defined       OP              WP
                      regulations will blur the rights and obligations
                      that is agreed between the parties, which in turn
                      may lead to: moral hazard and adverse selection.  Notes: X = Regulation; OP = Tax Authorities; WP = Taxpayers
                   ii.  Representation  of  taxpayers  in  drafting  the
                                                                    are  often  publicized  through  Directorate  General
                      regulations.  Every aspect  of taxation  should
                                                                    of  Taxes  Regulations,  which  are  not  necessarily
                      take in considerations the people’s choice.
                                                                    publicized through Government Gazettes. As such,
                      In Indonesia  this  is  stated  in the Article 28h
                                                                    the  need  for  socialization  campaigns  becomes
                      paragraph (4) of the Constitution:
                                                                    relevant in this context. 9
                      “Each person has the  right  to own private
                      property and such ownership shall  not be        Currently  however  taxpayers  are  fortunate
                      appropriated arbitrarily by whomsoever”       enough because, external parties are able to provide
                                                                    online services  (often also for free) in monitoring
                      Whereas Article 23A of the Constitution states:  tax  information  and  its  developments.  Moreover
                                                                    the information technology available today, enables
                      “Taxes and other compulsory levies required for   taxpayers  to navigate through the complexity  of
                      the needs of the state are to be regulated by law”  various regulations in more organized way, making
                                                                    it  easy  for  taxpayers  to  find  relevant  regulations
                      From the above, it  could  be  concluded that
                                                                    more  efficiently.  This  development  is  further
                      Indonesia  recognizes  the  concept  of  “private
                                                                    strengthening by the initiative from the Directorate
                      property” and allows the levy of taxes, however
                                                                    General  of  Taxes  by  forming  a  Tax  Socialization
                      only if such taxes are regulated by law, which
                                                                    Team in each district office. 11
                      is  a  product  of  public  representation  (public
                      choice).                                         Compliance  cost  in  the  context  of  interaction
                   iii.  Complexity  of  tax  system  could  increase  the   model  layer  1  is  more  influenced  by  the  quality
                      potential  to arise  asymmetric information   of  regulations and how information regarding
                      situations.  Generally,  tax  authorities  are  more   these  regulations  is  available to the parties. In
                      familiar  to the details  of tax  regulations  if   order to have an equal distribution of information,
                                                                    corporate taxpayers  will  often incur  mandatory
                      compared  to the  taxpayer. This  may lead to
                      a situation  where possession  of information   costs, i.e. salary expenses for staff. When the tax
                      is not balanced between tax authorities and   system is complex and/or information difficult to
                      taxpayers.  Consequently  this  situation  may   obtain,  then corporate  taxpayers  will  often face
                      drive one of the parties to conduct  signaling   with voluntary cost, i.e. cost for external advisers.
                      to the other party. As example: tax authorities
                                                                       3.2.  Interaction model layer 2
                      may create a situation where taxpayers feel as
                      if they have made a mistake in reporting their
                                                                       In interaction model layer 2, besides taxpayer
                      tax obligations.
                                                                    and tax authority, an additional  party, the tax
                                                                    consultant  is also involved. The tax  consultant
                      Interaction model layer 1 could be illustrated as
                                                                    is an external party who has a power of attorney
                   Figure 2.
                                                                    to represent the taxpayer and is assumed to have
                      Besides  the above,  another  issue  is  how far   sufficient  information  and  expertise  regarding
                   regulations  are  socialized  /informed  evenly  and   taxes.
                   balanced  to all taxpayers.  As long as regulations
                                                                       The  need  for  external  advisers  is  recognized
                   are published through Government Gazettes, then
                                                                    under  Ministry  of  Finance  Regulation  No.  22/
                   the legal fiction  applies and the Government has
                                                                    PMK.03/2008.  According  to  this  regulation,  only
                   in principle no further  obligation  to inform the
                   public regarding the enacted regulations. However,
                   technical  details  on the  application  of tax  laws   9  Since  Indonesia  adopt  self-assessment system,  advance  ruling is
                                                                    necessary. Further, in several countries, the move to a self-assessment
                                                                    system was the direct and primary reason to adopt a system of formal
                                                                    advance rulings.
                   8 Legal fiction is a fact assumed or created by the Law, in which all
                   subjects of the Law are assumed to know and understand the Law in a   10 For example: Ortax, PajakOnline, and others
                   way binding to them.                             11 As announced in letter No. SE-99/PJ/2011
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