The Political Economy View of a New State Revenue Agency
The Political Economy View of a New State Revenue Agency

The Political Economy View of a New State Revenue Agency

When did the idea start, and how is the progress?

The final draft of the national long-term development plan 2025-2045 stated an ambitious 18-20% tax ratio; meanwhile, the 2023 tax ratio was only 8.8%. Even though that is a 1.92% increase after the 2020 ratio when the COVID-19 pandemic happened, what can guarantee the ratio will stably increase ahead? At the end of last year, the Minister of Finance, Sri Mulyani, argued that if the tax buoyancy, which indicates the tax ratio of the gross domestic product, is consistently above 1, the tax ratio will grow. However, the Directorate General of Taxes (DGT) faces the enormous challenge of reforming their Core Tax Administration System (CTAS) and responding to the current presidential candidates’ idea to form a new State Revenue Agency.

The Minister of Administrative and Bureaucratic Reform Letter Number B/59/M declared that idea twenty years ago.PAN/1/2004 to the president. They proposed to separate the DGT from the Ministry of Finance to make it an autonomous agency and remove trias politica inside the DGT, which means the functions of rules-making (legislative) and appeal-granting (judicative) from revenue-collecting (executive); therefore, the DGT can focus on implementing the tax law without considering the political revenue target. However, the decision depends on the political consideration of the Minister of Finance whether he could delegate the revenue authority.

Ten years later, in 2014, the idea was followed up by a Minister of Finance, Chatib Basri, who explicitly declared three options: (1) a new agency under the Ministry of Finance (MoF); (2) an independent agency that was directly responsible to and coordinated with the president; (3) maintain the DGT under MoF with more flexibility in recruiting employees, providing remuneration, and so on. He argued that the most feasible choice is the last one, and the hardest one is Option 2 because it needs the law amendment. Nevertheless, Chatib Basri let the next government choose the best one.

There needed to be more hope in 2016 when the DGT proposed that idea in revising The General Tax Law Number 28/2007 to The House of Representatives. The goal was still the same: DGT could be more flexible in recruiting employees and creating the budget to face more complex revenue-collecting challenges. However, they expected DGT to choose a semi-autonomous form rather than an autonomous one to coordinate with MoF, especially fiscal policy-related. Even though the Head of the House of Representatives, Bambang Soesatyo, fully supported the revision of the law, President Joko Widodo did not approve the idea in his second term, 2019-2024, because the Minister of Finance, Sri Mulyani, often argued that the state finance law does not allow the separation of the tax and fiscal authority. Moreover, the current focus has been shifted to reforming the Core Tax Administration System ruled by The Regulation of President Number 80/2018.

Is the idea still feasible to execute?

The long way to creating the new agency remains questions: What is the real challenge of all of this? The theorists who called themselves political economists, such as Adam Smith, David Ricardo, and John Stuart Mill, claimed that the economic and political things should not be segregated; politics can affect the economy and vice versa. Some interest groups try to show their impact on policy; conversely, the economic situation will affect political activity. As we can see from the 2004-2024 facts above, some government institutions simultaneously support and hold the idea of forming a new state revenue agency. But, when the current situation shows that the tax ratio does not fit the budget needed to develop the country, all recent presidential candidates re-declared the idea.

Next, what is the difference between the political commitment of the 2014 and 2019 presidential candidates and the current ones? In “The Political Economy of Economic Policy,” Frieden (2020) stated that where we stand depends on where we sit, which means the presidential candidates try to collect revenue to spend on their programs. So far, they delivered the idea in every debate, and one proclaimed that the concept would start like making the regulation of a new capital city in these five years; however, the new state agency is estimated to be shorter than that.

Last, how feasible is forming the new state revenue agency in the next presidential term? It should be economically and politically viable, but the second-best policy is enough, not the first one, which will worsen (Frieden, 2020). If the autonomous form is too risky, the semi-autonomous one is the best option. Then, if the semi-autonomous is still too tricky to form, focusing on implementing the new CTAS is the finest decision for now. Moreover, instead of reaching the revenue target on this year’s state budget, DGT aims to collect more revenue to increase the tax ratio and buoyancy concurrently.

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