Page 10 - Working Paper (The Myths and Realities of Tax Performance Under Semi-Autonomous Revenue Authorities)
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DDTC Working Paper 0213
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                   taken .                                          ability  to further  explore the potential  of direct
                                                                    taxes  from the taxpayer. However, the model
                      On  the other hand, what  about  the level  of   of  SARA  is  also  increasingly  related  to  a  more
                   democracy? Variable  of level of democracy is    complex taxation system, which  is  shown  by
                   measured based on the value system of governance   an increasing number and intensity  of  meeting
                   spans from very democratic to very autocratic. This   between taxpayers with tax officials. Interestingly,
                   indicator is taken from the variable polity released   both SARA and non-SARA model still face the same
                   by Polity IV which is a ranking values ranged from   problem  of non-compliance.  This  is indicated by
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                   -10 (highly autocratic) to 10 (very democratic).    the number of tax  morale  and the percentage  of
                   Data  polity  is  regarded  as  the  best  proxy  of  the   firms that hide the sales data in order to reduce tax
                   political situation, as calculated from the difference   payments.
                   between  the  democracy  index  (‘democ’)  and
                   autocracy (‘autoc’). Index ‘democ’ in the Polity IV   Furthermore,  this  study  proved  that  the
                   is basically measure democracy  that  consists  of   institution  is  a  significant  factor  in  affecting  tax
                   three elements: (i) the presence of institutions and   revenues. These results are consistent and robust
                   procedures through which citizens can  express   in various econometric  approaches.  A country
                   their choice  over policies and their leader’s   that  adopts  the  model  of  SARA  have  a  better
                   performance;  (ii)  a  system  that  limits  the  power   ability  to mobilize revenue. On  the other hand,
                   of the executive; (iii) guarantee of civil liberties in   aspects of economic level, economic structure, and
                   everyday life and political participation.       demographics have also important roles. The higher
                                                                    the level of consumption, more modern economic
                      While  the index  ‘autoc’ measured from
                                                                    structure,  as well as the economy openness  will
                   institutional  care to a less autocratic political
                                                                    impact positively on the tax revenue. On the other
                   freedom and political competition system. Each of
                                                                    hand, the  higher  the dependency  ratio of  the
                   these indices (‘democ’ and ‘autoc’) has a value of 0 to
                                                                    number of non-productive age population to total
                   10. So the difference between the two will result in
                                                                    population  of  reproductive  age  (age  dependency
                   values that spanned from -10 to +10. Unfortunately,
                                                                    ratio) will reduce tax revenue in a country.
                   the results  of the regression  are performed,  the
                   level of democracy is only significant in the logit   Finally, the decision to adopt SARA is clearly not
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                   model. Variable rule of law , the law enforcement   solely  influenced  by  the  internal  administration
                   variables do not give a significant result. That is,   calculation,  but  also should include broader
                   both countries with rule of law, low and high were   political-economic  considerations. If a  country
                   equally likely to adopt SARA.                    has a system of government that is effective in the
                                                                    sense  that, every policy is decided  and executed
                   7. Conclusion: Demistfiying SARA                 with  consistency  and  efficiency,  then  there  is
                                                                    a  tendency  to  adopt  a  model  of  SARA.  Further,
                                                                    level of democracy also has  an important effect.
                      There are very limited empirical researches on
                                                                    In  a democratic  political  system, the decision  of
                   the implications of the SARA model. This condition
                                                                    adopting SARA is not something that is impossible.
                   creates little room for policy makers to determine
                                                                    This implies that democracy is more compromised
                   their stance. Or in other words, there are no clear
                                                                    form  of  fiscal  exchange  relationship  between
                   explanations  that  is  able  to convince the policy
                                                                    society and the state so that tax affairs should be
                   makers to immediately adopt institutional SARA for
                                                                    given the place that is more autonomous and free
                   their tax authorities. Policy makers are clearly still
                                                                    of political interference.
                   weighing this decision,  especially as proof of the
                   success of SARA is also offset by the unsuccessful
                   cases.
                      From  our  analysis,  it  appears  that  the  SARA
                   model is identical to relatively low percentage of
                   shadow  economy,  lower tax  bribe, as well  as its

                   26 Worldwide Governance Indicators (WGI) released by World Bank and
                   developed by Kaufmman, Kraay, dan Mastruzzi.
                   27 Extracted from database  Polity IV  which  developed by Political
                   Instability  Task Force, Societal-Systems  Research Inc, and Center for
                   Systemic Peace. Available for all countries from 2002 – 2011.
                   28  Rule of  law  variable describes the  perception about obedience
                   against  rules  and  regulation apply  in  the  community,  especially  about
                   law on property ownership, quality of police enforcement  and court, law
                   enforcement quality, police and court quality. See Worldwide Governance
                   Indicators (WGI) released by World Bank and developed by Kaufmman,
                   Kraay, and Mastruzzi.
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