Page 6 - Working Paper (Asymmetric Information & Its Impact On Tax Compliance Cost In Indonesia)
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DDTC Working Paper 0113                                                                                                DDTC Working Paper 0113
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                   personnel of a company that are qualified formally       Figure 3 - Interaction model layer 2
                   according  to  a  recognized  educational  institution
                   are allowed to represent certain taxpayers. The
                                                                                          X
                   regulation  further  states  the following types of
                   taxpayers that are allowed to be represented by the
                   personnel  concerned:  (i)  private  individuals  not
                   conducting business  or  practicing a independent
                   profession;  (ii)  private  individuals  who  are             OP              WP
                   conducting business  but  with a limited  annual
                   turnover of not more than Rp. 1.8 billion; and (iii)
                   corporate taxpayers with a limited annual turnover
                   of not more than Rp. 2.4 billion. As could be seen
                                                                                         KP
                   there is a significant gap of types of taxpayers who
                   are not allowed to be represented by a personnel.
                   This gap is fulfilled by the role of tax consultants.  Notes: X = Regulation; OP = Tax Authorities; WP = Taxpayers;
                                                                                   KP = Tax Consultants
                      On  the other hand, the same regulation
                                                                    information. A tax  consultant  that  has network
                   stipulates  that  qualified  tax  consultants  are
                                                                    with the tax office will certainly be able to obtain
                   persons who are certified in accordance with the
                                                                    information more easily.
                   Indonesian  Tax  Consultant  Association  (Ikatan
                   Konsultan  Pajak  Indonesia,  abbreviated  IKPI).
                                                                       Where the issue of asymmetric information
                   Considering the above, there are at least 3 options
                                                                    is present in the tax  consultancy market,  the tax
                   for  corporate  taxpayers  to  deal  with  Ministry  of
                                                                                                              12
                                                                    consultants  will  attempt  to conduct  signaling ,
                   Finance  Regulation  No.  22/PMK.03/2008:  (i)  to
                                                                    to form a certain perception of themselves to the
                   hire professional services from an certified external
                                                                    taxpayers. This could be performed by for example:
                   adviser, (ii) to develop and train current employees
                                                                    branding or association with a globally recognized
                   so that they could obtain the certification, or (iii)
                                                                    firm, speaking in seminars, publication of materials,
                   hire  new  staff  who  are  already  certified.  All  the   or even through access with the tax authorities.
                   three options seem to impose additional voluntary
                   cost for the corporate taxpayer in order to comply   On the other hand, the asymmetric information
                   with the tax system.                             situation in tax consultancy market will potentially
                                                                    cause taxpayers to incur additional expenses such
                      As tax  consultant  services  are considered to
                                                                    as, expenses  for  screening an appropriate tax
                   contribute in compliance cost, the remaining
                                                                    consultant, a higher fee for consultancy services, or
                   question  is  how   asymmetric   information
                                                                    losses due to a selection of a tax consultant that is
                   contributes to costs in relation to the selection of
                                                                    not sufficiently capable.
                   tax consultant to be hired.
                                                                       In the end, tax consultants are often assumed
                      Asymmetric information in the tax consultancy
                                                                    to have the required expertise regarding tax
                   market could affects the way in which  taxpayers
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                                                                    regulations  or  in other  words  the party that
                   selects their tax consultants, which often is based
                                                                    possesses  complete information. As such  the
                   on a biased selection. Up to date there is no objective
                                                                    selection of tax consultant  has to be conducted
                   measurement for tax consultant that is accessible
                                                                    carefully in an asymmetric information situation.
                   to the public. The lack  of such information,
                   results that taxpayers based their selection on an   3.3.  Interaction model layer 3
                   alternative criteria, such brand names of globally
                                                                       When regulations  are multi-interpretational,
                   recognized firms or tax consultants who network
                                                                    it is most often the case  that  taxpayers  and tax
                   connections  with important persons  in the tax
                                                                    authorities  will  have  different positions  on its
                   office.  The  preference  of  taxpayers  to  base  their
                                                                    application. Undoubtedly, both parties will defend
                   selection on the above criteria could be explained
                                                                    their  position rigorously and when no common
                   by the  risk-averse nature of taxpayers,  i.e. for
                                                                    understanding is reached, then the case will end-
                   avoiding risks.
                                                                    up in tax court dispute. A tax court procedure will
                      The  preference of  taxpayers  to select a tax   process  both  evidence  on the applicable  facts  as
                   consultant  who has network  connections with    well as analyze the legal arguments of both parties.
                   persons  of  the  tax  office  does  not  necessarily
                   assert that this preference is based on the urge of
                   taxpayers to conclude  informal  agreements with   12 Michael Spence, “Job Market Signaling”, Quarterly  Journal of
                   the  tax  officials,  but  more  because  of  rationality.   Economics, The MIT Press, 1973, p. 355-374
                                                                    13 This is also stated in Article 49 paragraph (3) Government Regulation
                   In this  context, the rational  is to obtain  more
                                                                    No. 74, Year 2011
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