Indonesia’s hunt for honest taxpayers

A tax amnesty in this Southeast Asian nation has yielded a mass display of contrition among tax evaders. The new honesty will help rebuild both the economy and democracy.

Reuters
A government official assists a tax amnesty participant at a help desk inside the country's tax headquarters in Jakarta, Indonesia.

The country of Indonesia in Southeast Asia is a land of superlatives. It is one of the world’s largest democracies but also one of the most corrupt. Its economy is bigger than that of France or Britain. It has more than 17,000 islands and more than 700 languages. But last year it added a new superlative.

In an astonishing display of personal honesty, more than 600,000 Indonesians came clean and declared unpaid taxes that were long overdue. The new revenue was equal to about a third of Indonesia’s economy.

The lure was a limited-time tax amnesty that began in July and was aimed at gaining money to build new roads, ports, and bridges. But it was also devised to build up trust between the government and citizens. Only about 27 million of Indonesia’s 261 million people are registered taxpayers. And of those, fewer than 1 million pay the proper tax.

For decades, tax amnesties have been a common tool for governments to get a quick shot of revenue from tax evaders. But if done well they can improve tax compliance and allow citizens to feel a stake in the future of their government.

As Indonesian Finance Minister Sri Mulyani Indrawati put it, “The rise and fall of a country is highly dependent on the country’s moves to collect the tax.”

In most countries, paying taxes is often loosely enforced and relies heavily on voluntary compliance. A tax amnesty serves as one-time forgiveness but also a chance for tax evaders to acknowledge their mistake and act with open honesty. As long as amnesties are not too common, regular taxpayers may welcome them as necessary.

Governments must be fair and transparent in how they collect taxes and enforce tax laws. Since 2014, when he was elected to office, Indonesia’s reformist president, Joko “Jokowi” Widodo, has started many reforms to bring about clean and efficient government. If the success of the tax amnesty is any marker, he is building a new contract between taxpayers and their government, one based on the power of honesty.

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