Increased tax refunds causes decline in revenue

TAX - JAKARTA. The simpler process of claiming tax refunds has caused an increase in claims over the past few months and cut into the tax revenue, the tax office has said.

The Finance Ministry’s Taxation Directorate General said that revenue from value-added tax (VAT; PPN in Indonesian) and luxury tax (PPnBM) had fallen as of recently, as it had paid a greater amount in tax refunds.

The April 2018 issuance of the Finance Minister Regulation on accelerated tax refund procedure allowed taxpayers to receive their refunds in a month instead of in a minimum of one year. The faster tax refund facility applied to compliant taxpayers as well as exporters and importers with authorized economic operator (AEO) certification from the Customs and Excise Office.

In addition to increased taxpayer compliance, the regulation aims to improve corporate cash flow to boost economic activities in the country.

Since the regulation was issued, the tax office recorded a 264 percent increase in tax refunds in May-December 2018 to 1,499 applications. The amount reached Rp 20.46 trillion (US$1.45 billion), or a year-on-year (yoy) increase of 91 percent.

Tax revenue and compliance director Yon Arsal said the increase in tax refund claims indicated that businesses were enjoying the new facility and that this helped improve productivity.

However, the faster tax refund process has taken a toll on tax revenue from VAT and PPnBM, with the Finance Ministry recording a 9.2 percent yoy decline in revenue to Rp 29.3 trillion. The figure comprises domestic VAT of Rp 14.99 trillion, or a sharp decline of 19.5 percent yoy, and import VAT of Rp 13.83 trillion, or a mere 6 percent yoy growth.

Some people might view the decline in VAT revenue as a symptom of the slowing economy, but Finance Minister Sri Mulyani Indrawati stated that the negative growth was caused by January's payment of Rp 16.4 trillion in tax refunds, a yoy increase of 40.66 percent.

“Our effort to simplify the tax refund procedure has caused the tax office to disburse more in tax refunds, causing a decline in VAT and PPnBM net revenue,” she said at a recent press briefing in Jakarta.

Sri Mulyani also said that the country’s VAT revenue was still growing robustly, as the ministry recorded Rp 45.62 trillion gross revenue in January. However, the VAT revenue only grew 4.05 percent yoy, lower than last year’s growth of 10.41 percent.

Danny Darussalam Tax Center (DDTC) research partner Bawono Kristiaji said that negative growth in VAT revenue did not necessarily mean that the country’s economy was slowing down.

“I think the lower [tax] revenue was caused by slowing imports in the first month of the year,” he said, pointing out that import value decreased last month for both oil and gas and non-oil and gas products, which contributed 30-35 percent to VAT revenue.

Taxation director general Robert Pakpahan said that although the increase in tax refund payments was causing a decline in VAT revenue, this meant that industry players were still exporting their goods, given that VAT was imposed only on domestically consumed goods.

“This means that exports are continuing and bringing foreign exchange to the country,” he said.

The Finance Ministry’s data show that throughout January, most of the tax refund claims came from exporters, such as companies in the palm oil, base metals, mining, paper and automotive industries.