How to Tackle Corruptions in the Directorate
General of Taxes
On October 4th, 2018, the
Indonesia's Corruption
Eradication Commission (
Komisi
Pemberantasan Korupsi /KPK) announced that they have arrested six people,
including a senior tax official and investigators of the Directorate General of
Taxes (DGT), for alleged bribery in Ambon, Maluku. Although, this issue is soon
disappear due to overwhelmed by other news, such as Ratna Sarumpaet’s hoax case
and all related ‘political’ commotions, the weakness of rupiah against US
dollar, and others, I think that corruption cases always need high attention.
Before the Ambon case, in April 2018, KPK also arrested a tax
official in Pangkalpinang, Bangka Belitung due to an allegation of extorting
Rp50 million from a taxpayer.
The two cases have added a long list of corruption offences at
DGT since the case of, arguably, the most Indonesia's
most notorious corrupt tax official, Gayus Tambunan was in
2010. Although Gayus has been punished in prison, he described himself as a
‘small fish’ compared to other much larger wrongdoers in the DGT. Corroborating
his assertion, related analysis indicated that a significant “tax mafia”
operates within the organization.
Following the Gayus case, several other corruption cases
emerged in the mass media in the last decades. Some of them attracted high
media coverage, such as cases committed by Bahasyim Assifie, Dhana
Widyatmika, Tommy Hindratno, Anggrah Suryo, Pargono Riyadi, Eko Darmayanto and
Mohammad Dian Nuqisra, and Handang Soekarno.
Those cases above involved DGT employees from
various positions indicating that regardless of the level, each tax employee is an inherent risk to
commit bribery or corruption.
I believe
that the revealed cases are just iceberg phenomena. It seems that a larger
percentage of a problem is subclinical, unreported, or otherwise hidden from
our view. As can be seen from the table below, it indicates that public
still consider corruptions occurred in DGT.
Public’s* Perception of Corruption in DGT
from 2011 to 2013
Items
|
2013
|
2012
|
2011
|
1.
Number of Tax
Payers Giving Additional Payment or Favour
|
13
|
12
|
19
|
2.
Initiator of
giving additional payment:
|
|
|
|
·
DGT Employees
|
33%
|
41.7%
|
36.84%
|
·
Tax Payers
|
17%
|
16.7%
|
15.79%
|
·
Both
|
50%
|
41.7%
|
47.37%
|
3.
Service Quality
After Additional payment
|
|
|
|
·
Increase
|
75%
|
66.7%
|
73.68%
|
·
No Increase
|
25%
|
33.3%
|
26.32%
|
4.
Frequency
|
|
|
|
·
Always
|
15%
|
16.7%
|
36.84%
|
·
Often
|
8%
|
41.7%
|
26.32%
|
·
Rare
|
77%
|
41.7%
|
36.84%
|
5.
Type of
payments or favours
|
|
|
|
·
Money/cheque
|
N/A
|
91.7%
|
89.5%
|
·
Entertainment
|
N/A
|
50%
|
10.5%
|
·
Souvenir
|
N/A
|
30%
|
5.3%
|
·
Other
Facilities
|
N/A
|
27.3%
|
5.3%
|
6.
Level of DGT
employees accepted the bribe
|
|
|
|
·
Direct contact
(DGT immediate employee)
|
15%
|
54.5%
|
47.37%
|
·
All levels
|
8%
|
30%
|
36.84%
|
·
Decision Making
Level
|
77%
|
27.3%
|
26.32%
|
7.
One determines
the amount of surcharge
|
|
|
|
·
Bargaining
|
N/A
|
72.7%
|
42.11%
|
·
Common Standard
|
8%
|
45.5%
|
10.53%
|
·
DGT Employee
|
23%
|
50%
|
21.05%
|
·
Tax Payers
|
69%
|
27.3%
|
26.32%
|
8.
Level of
Corruption
|
|
|
|
·
Do Not Know
|
48.9%
|
50.9%
|
N/A
|
·
Serious
|
14.2%
|
23.1%
|
45.03%
|
·
Not Serious
|
16%
|
16.8%
|
39.18%
|
·
No Corruption
|
21%
|
9.2%
|
N/A
|
·
Not Answer
|
N/A
|
N/A
|
15.79%
|
*Public: tax payers received services from DGT
Source: Data obtained from Secretariat General,
the Ministry of Finance
In addition, based on my research in 2016, during the last five years
(2011-2015), respondents believed that 30 bribery cases occurred in DGT
involving Rp100 millions or more committed by various positions from staff to
echelon II and above as well as tax investigators. Based on information from
respondents in my 2016 study, in 2015 there were 50 bribery and tax extortion
cases reported through WISE. Of the number, 86% was valid according to the Internal Compliance and Transformation of
Human Resources’ (Kepatuhan
Internal dan Sumber Daya Aparatur/KITSDA) analysis. Until April 2016, there were 13 cases reported, which
was 85% valid.
Such behaviours may destroy public trust in tax employees. It
could trigger a movement in public to boycott pay tax, which potentially
decreases tax revenues. From the inside organization, the cases may
significantly let the faith and confidence of the DGT’s employees down in
bureaucratic reform. Moreover, the shame and embarrassment those caused could
make several DGT employees become somewhat secretive about their jobs. So, we
need to take extra ordinary strategies to tackle corruptions in DGT. However, I believe that there is none
strategy fits for all situations.
Thus, all
suggestions are connected to each other, indicating that in the real world,
things are much more complex than symmetrical explanation for tackling
corruptions; different causal pathways could lead to either reporting or
keeping silent. No single causal strategy is either sufficient or necessary to
explain the real world of eliminating corruption. For instance, if respondents
believe that retaliation is the most important factor deterring them from
disclosing bribery, then, simply
implementing more protections and guaranteeing of anonymity would not
automatically improve the reporting rate.
Among other strategies, below, I would like to highlight three most
effective strategies to tackle corruptions at DGT, which are “Know Your
Employee”, “Whistle-Blowing System”, and “Reverse Burden of Proof” as the
additional strategies that could be implemented by DGT.
Know Your Employee (KYE)
As we know that enemy within is as dangerous as criminals
outside. We have learned that one or some employees can cause the same or an
even greater threat of damaging institution’s reputation. Thus, Know Your
Employee (KYE) Program is seen as crucial to an institution's protection
against any possible frauds within an organization.
Furthermore, many institutions have expensed a lot of money to
put firmly in place KYE program comprising policies, procedures, internal
controls, background screening of potential employees, conflict of interests
assessments, job descriptions, code of conduct/ethics, levels of authority,
compliance with personnel laws and regulations, accountability, dual control,
segregation of duties and other deterrents. They also put red flags of
suspicious activities of their employees in order to detect and prevent any
possible frauds assisted by employees as early as possible.
Theoretically, there are some common red flags of suspicious
employee activities that are commonly used as examples, such as:
Ø
Employee exaggerates the credentials, background
or financial ability and resources of a customer in written reports the bank
requires;
Ø
Employee frequently is involved in unresolved
exceptions or recurring exceptions on exceptions reports;
Ø
Employee lives a lavish lifestyle that could not
be supported by his or her salary;
Ø
Employee frequently overrides internal controls
or established approval authority or circumvents policy;
Ø
Employee uses company resources to further
private interests;
Ø
Employee assists transactions where the identity
of the ultimate beneficiary or counter party is undisclosed;
Ø
Employee avoids taking vacations.
However, considering recent conditions, I think that
those KYE approaches including red flags are just not sufficient enough to
identify suspicious activities. It is easy for a bad employee to avoid them.
Many employees may easily not show off their wealthy in order to avoid others
suspicious. Red flags are just indicators of possible fraud that can be easily
evaded by wrongdoers since they know precisely what actions can be categorizes
as suspicious activities.
Moreover, there
are no unique characteristic of a fraud perpetrator. Many employees and
employers seemingly having excellent reputation are also possible to commit in
frauds, corruptions, embezzlements, extortions, and other white-collar crimes. The
characteristics and behaviors of perpetrators do not necessarily “anomalies”.
They can be married, have well education, good long employment tenure, various range
of ages, none criminal record, are socially conforming, and are likely to
belong to a religious institution. The person likely to commit next fraud could
be anybody in the office because, under the right set of circumstances, anyone
could become a fraud perpetrator. Indonesian’s Supreme Court (Mahkamah Agung/MA) indicated that
corruptions committed by high rank officials from bureaucrats and politicians
to law enforcers. Moreover, KPK’s data in 2016 informed that 361 District Heads
committed corruptions. The data from MA and KPK, arguably confirms the above
statement.
Thus, I, personally, believe that strong KYE program could not
merely rely on the approach including red flags. Indeed, it needs additional
components such as whistle-blowing system and reverses burdens in order to
prevent “enemy within”.
Whistle-Blowing System
In 1985, Janet P. Near and Marcia P. Miceli, professors from
universities in USA, which are arguably known as the most prominent researchers
in a whistle-blowing context, defined whistle-blowing as “the disclosure by
organization members (former or current) of illegal, immoral or illegitimate
practices under the control of their employers, to persons or organizations
that may be able to effect action”.
ACFE's report in 2006 indicated that 64.1% occupational
frauds were detected and reported by employees (whistle-blowers). Other reports
came from outside information such as from vendors, customers, and anonymous
with totally of 35.9%.
Other studies also
consistently indicate the same conclusion. For instance, PricewaterhouseCooper’s
(PWC) study in 2008 also revealed that whistleblowing by employees is the most
effective tool for identifying misconduct because the individuals who are the
closest to the business operations are best able to discern odd behaviour and
accidents, and detect finance-related crimes. As we know, corruption and
bribery are considered to be clandestine activities.
Moreover, the DGT’s
spokesperson confirmed also the above finding that the most corruption cases at
DGT can be detected due to the information received through their whistle-blowing
system (WBS).
The reports above show that whistle-blowers in a good faith
can be an effective tool to detect and reveal the internal frauds, even much
more effective compare to traditional KYE program. I believe that peer group
supervision is much more effective and efficient rather than top down
supervision since the later has a lot of limitations to scrutinize employees’
daily activities. In early stage of its implementation, whistle-blowing system
may increase a feeling of uncomfortable and insecure among employees, but in
the future, it may increase the awareness of employees about the dangerous of
committing crime by someone or a group of people for the whole company safety.
If somebody commits crimes, his or her action will threat the entire company safety
including most of good employees’ interests. The illicit actions conducted by
one or some wrongdoers often become the heavy burdens carried on all employees’
shoulders.
This awareness is a very important key to implement whistle
blowing system successfully. Furthermore, encouraging and protecting all
employees to involve in company’s protection program by providing strong supports
and commitments from management, and opening secret, sterile and secure hot
line services become crucial ones. Another issue is that keeping intensive
contacts to complainant and paying attentions to his or her reports can detect
the illicit actions. Moreover, it can prevent the whistle-blower to report his
or her complaints through mass media that can damage company’s good
reputation.
However, although a whistle-blowing system has a lot of
benefits; it is not a panacea that can solve all problems related to
white-collar crimes. Moreover, it also has some negative impacts if not used
properly, such as the system may be abused by someone or group of employees to
defame innocent rivals. If there is no secure and secret line for whistle-blowing
system, bad news of accused one will easily become black campaign to destruct his
or her reputation. Remember that a bad news and rumors are usually easier to be
generally trusted by most of people. Another potential bad massive impact is if
a whistle-blower does not feel that his or her report is handled properly by company
internal authority or management, they may speak out through mass media that
can damage institution’s reputation severely.
Among other things, I believe that we need more progressive approaches,
such as reverse burdens of proof.
Reverses Burdens of
Proof Program
Actually reverses burdens practices have been known and
implemented since a long time ago. The problem is in the hands of whom the
obligation to provide evidence must be carried out. Traditionally, many people
believe that if you assert someone doing wrong things, you should be able to
prove his or her mistake. Thus, the obligations to prove all elements of
offence are in hand of prosecutor(s). It based on the opinion that one of the fundamental
principles of criminal justice is the presumption of innocence.
However, in the last decades, many people consider in the name
of fair justice and protect bigger society’s needs of safety; it seems that a
lot of people need new methods to prove the wrongdoers’ illicit actions. If we
link it to company, many honest employees who do rely on continual company’s long
live may agree that internal wrongdoers are not easily to be catch merely based
on whistle-blowing reports. Whistle-blowing is merely a trigger for further
investigation to the accused persons.
Previous research conducted by US Merit Systems Protection
Board (MSPB) in 2011 showed that a high rate of reporting, particularly for
serious types of wrongdoing, is highly related to the quality of evidence held
by whistle-blowers. It indicates that whistle-blowers need accurate information
about the misconduct before making a decision to report or not report. Findings
in my 2016 study confirmed the finding. The majority (86%) of respondents
claimed that they would disclose bribery if they had sufficient evidence. The
five most important types of evidence are: (1) documents (written order,
letter, memo) that can be used as an evident that someone (usually the high
rank official or supervisor) has against the regulations, rules, and policies;
(2) knowing information in detail (what, who, when, where, why, and how)
although without supporting document, such as a verbal instruction from supervisors
to alter tax analysis results; and (3) witnessing the bribery; (4) being
directly involved in the bribery; and (5) emails or other electronic evidence,
such as recorded meeting, instructions.
The DGT should require that all officials and supervisors to
document their actions. If officials and supervisors do not implement a proper
documentation protocol, employees should have the right to refuse participation
in the business process. The employees are legally protected from any form of
retribution or discrimination if they exercise this right.
However, to prove whether somebody has commit crime or not,
accused person not only should prove the neat documents of his or her duty
jobs, but also if needed, they may have to prove that his or her “variance”
belongings are not derived from ill-gotten money compared with his or her
standard known incomes.
To ensure and review the document as well as to monitor
business process, the DGT should make use of information technology to detect
tax review irregularities. The success of the Indonesian Tax Amnesty Program in
2016 can be used to widen the tax base. In terms of audit purposes, the new tax
base is more effectively based on risk assessment. Then, information technology
should be used as an early detection tool of tax avoidance red flags, in
particular among the wealthy. More parties (i.e. operational managers, internal
control, risk management, compliance, and the internal and external auditors)
should be involved in the process of tax assessment and reviews to make the
technology more useful to detect possible unlawful assessment conducted by the
DGT’s internal employees.
In addition, attention should be paid to the taxpayers because
bribery usually involves two parties, both of whom benefit from the
misconduct. An internal control system
to identify and determine suspected taxpayers is needed because it provides a
more comprehensive means of addressing bribery than does a compliance program. Several
approaches, such as: 1) due diligence of
taxpayers, extended ‘to all third parties involved in tax controversy and
discretionary tax issues, including lawyers, accountants, and tax advisers; 2)
monitoring taxpayers in high risk areas; 3) monitoring taxpayers payments; and
4) accessing taxpayers’ bank accounts, could be included in an internal control
program. The Automatic Exchange of Information (AEOI) is a good starting point
to support transparency and accountability on this issue.
Although I do not try to simplify the situations, it is quite
easy to prove whether the money or belongings come from legal sources or not.
The simple formula is employee’s wealthy and belongings should be able to be
supported by his or her incomes. Then, if there is an excess wealthy that cannot
be supported by his or her incomes, the accused person should demonstrate that
the excess is derived from legal sources, for instance from inheritance or
other side job income. Furthermore, their belongings should be also supported by
legal documents. Full access to employees’ private account and belongings is a compulsory.
Thus, the company authority, without deposing or reducing or substituting legal
actions that may be taken by government authorities, should have full access to
their employees’ wealthy and have rights to fully investigate and track the
sources of money.
Conclusion
Although there are some impediments that may hamper the
implementation of whistle-blowing and reverses burdens of proof system, such as
potential abusing of the systems for defaming innocents and black campaign, I
do believe that considering the necessity of effective KYE Program, organizations,
including DGT should consider whistle-blowing and reverses burdens of proof
systems as additional complementary tools. In addition, in order to protect the
reputation of both complaint and accused persons, whistle-blowing and reverses
burdens of proof systems should be firmly in place of secure, secret, and
safety line with only limited authorized persons who can access it, like a
company hot line. Moreover, due to limited authorities of DGT and Inspectorate
General to investigate ‘corruption’ cases, they need to improve and
relationship and collaboration with KPK and other law enforcement institutions.
Topics:
Know your employee, whistle-blowing, reverse burden of proof, bribery,
Directorate General of Taxes
The author is a public official in a ministry in Indonesia. The views
expressed are his own and do not reflect the official stance of the institution he is working. His writing is not intended to vilify particular
persons or institutions. He blogs at http://whistleblowing-indonesia.blogspot.com/
