Page 7 - Working Paper (Asymmetric Information & Its Impact On Tax Compliance Cost In Indonesia)
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DDTC Working Paper 0113  DDTC Working Paper 0113

                      It should be noted that in Indonesia the tax court   is  lack  of  legal  resources  (absence  of  clear
                   procedure is limited to only one level , which may   regulation, literature, case law and others). In
                   cause a negative incentive for taxpayers to process   such case, the tax court will favor a decision to
                   their  case  in the  tax  court. At the same time,   the party, who has signaled most accordingly.
                   there  will  be a high  probability of  an increasing   As could be observed previously in interaction
                   compliance cost, because taxpayers will be forced   model layer 1, an asymmetric information situation
                   to finalize their case in its favor at this stage. 15  could already arise between the direct interactions
                                                                    of taxpayers with the tax authorities. The intention
                      The following  illustrated Interaction  model
                                                                    to involve tax  consultants  and  the  court in  this
                   layer 3:
                                                                    context  should have  been to  resolve or  decrease
                           Figure 4 - Interaction model layer 3     this asymmetric information situation. Instead, the
                                                                    involvement of parties has in practice contributed
                                                                    to  the  opposite. An explanation  to  this  could be
                                                                    due to the fact that each party involved is triggered
                                                                    to use asymmetric information situation  for self-

                                OP             WP                      3.4.  Interaction model layer 4
                                                                       The involvement of the public in social issues
                                                                    in  general,  including  taxation  issues  specifically,
                                                                    has in principle the purpose as a social check. In
                                        KP                          relation to this are three fundamental questions:

                                                                    1.  What kind of public could contribute positively
                                                                       to asymmetric information situations?;
                                                                    2.  Could   the   public   resolve   asymmetric
                                        PP                             information situations?; and
                                                                    3.  What could encourage the public to successfully
                                                                       resolve asymmetric information situations?
                      Notes: X = Regulation; OP = Tax Authorities; WP = Taxpayers;
                             KP = Tax Consultants; PP = Tax Court      The public in this context is assumed to be the
                                                                    press and public figures because their influence in
                      The  following  are the issues  in interaction
                                                                    forming public opinions. In order to perform a social
                   model layer 3:
                                                                    check accordingly, the public  should  be critical
                   i.  In an asymmetric  information situation,     in  nature  and  supported  by  sufficient  accurate
                      the tax  consultant  may potential  attempt  to   information. It is therefore of importance that the
                      monopolize information from the taxpayer. In   public possess a sufficient level of knowledge on
                      other  words,  tax consultant  may attempt to   current taxation issues.
                      avoid  information from directly reaching the
                                                                       In this context, the press should have specialized
                      taxpayer by for example avoiding taxpayers to
                                                                    journalists that have a well  understanding on
                      interact  directly  with  tax  authorities  and/or
                                                                    taxation issues in order  to perform  their  social
                      tax court. In this way, the information provided
                                                                    responsibility to inform the public  on accurate
                      by the tax consultant will be the only source of
                                                                    information. Besides  the above, the press  should
                      information for the taxpayer.
                                                                    maintain  a  track  record  on  public  figures,  which
                   ii.  The absence of transparency in the tax  court
                                                                    includes academicians, observers as well  as
                      could encourage abuse of authority and lack of
                                                                    practitioners who are also involved in the previous
                      quality in reasoning and arguments. This takes
                                                                    interaction layers.   This  is  required  because the
                      place even more, if the issue at hand relates to
                                                                    press  also  acts  as  a  filter  of  inaccurate  and/or
                      complex  cases of interpretation  where there
                                                                    deviated information,  which  could prevent the
                                                                    forming of asymmetric information situations.
                   14 According to article 33 paragraph (1) Law No. 14, Year 2002, the
                   tax court is the competent court for making decisions regarding with tax
                   issues at the first and last instance.  Article 77 paragraph (1) Law No.14,   The  success  of  the public  in resolving
                   Year 2002 further states that decisions made by the tax court are final   asymmetric information situation also depends on
                   decisions with legally binding powers, such that no further legal remedies   information transparency in  previous interaction
                   (cassation) is available. However according to Article 77 paragraph (3)
                   Law  No.  14 Year 2002, in certain circumstances  (such as “novum”),   models. Therefore, it is important that the public
                   a  judicial review may  be  proposed  to  the  Supreme Court.  This  is  in   is granted the right to access information and the
                   accordance with Article 24 paragraph (2) of the Constitution which states
                   that tax court capacity falls under the scope of the Supreme Court  right to demand of transparency in the tax system.
                   15 Please note that there is also a 100% penalty if taxpayers lose at the   The following illustrates model interaction layer 4:
                   tax court.
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