Breakthrough Strategies to Detect Corruption in the Directorate General of Taxes

On October 4th, 2018, the Indonesia's Corruption Eradication Commission (KPK) announced that they arrested six people, including a senior tax official and investigators of the Directorate General of Taxes (DGT), for alleged bribery in Ambon, Maluku. Before the 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. Following the Gayus case, several other corruption cases emerged in the mass media in the last decades. Some of them, at least eight perpetrators of corruptions from Bahasyim Assifie to Handang Soekarno have attracted high media coverage.

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. Based on my research in 2016 and from other sources indicated that the number of corruption cases at DGT is greater than those of published by the media.

Such behaviours may destroy public trust in tax employees. It could trigger a public’s movement to boycott pay tax, which potentially decreases tax revenues. So, we need to take extra ordinary strategies to tackle corruptions in DGT. An enemy within is as dangerous as criminals outside. One or some employees can cause the same or an even greater threat of damaging institution’s reputation. Thus, Know Your Employee Program is seen as crucial to an institution's protection against any possible frauds within an organization.

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; and

Ø  Employee avoids taking vacations.

However, I believe that the red flags are just not sufficient to identify suspicious activities. It is easy for a bad employee to avoid them. Many employees may easily not show off their wealthy at their office in order to avoid colleagues’ 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.

Actually, the DGT employees have to report their wealth to KPK and the Inspectorate General. However, the big question is whether they have reported their “self assessment” wealth honestly.

Thus, the Ministry of Finance (MoF) needs to implement breakthrough strategies namely establishing an independent special task force within DGT to audit annual tax returns (SPTs) and wealth of tax officials, especially the highest levels, tax auditors and ‘high risk’ employees. The big question is whether they are brave enough to scrutinize their bosses and colleagues’ wealth and SPTs. Thus, the task force has to be given with a huge mandate to conduct this task and shall function independently and be directly accountable to the Minister of Finance. Moreover, members of this task force have to be guaranteed with immunity to conduct their jobs and have career path certainty. To select and recruit members of the task force, MoF may learn from the establishment of ICAC in Hong Kong in 1974. Arguably, they successfully recruited “the most honest and ethical” police staff to investigate corruption cases in public departments including the police counterpart.    

MoF needs also to involve Neighborhood Association (RT) and Community Association (RW) to scrutinize and report ‘suspicious’ tax officials’ life style in their area to the task force. Psychologically individuals tend to share their achievements, wealth and hide their failures. So by involving individuals’ nearest the tax officials in their daily life would be an effective strategy to reveal indicated illegal wealth. Moreover, following the philosophy of the PP 43/2018, the informants who disclose to the task force regarding possible corruption or suspicious life style of DGT employees could be rewarded with a financial incentive. 

Then, MoF needs to implement Reverses Burdens of Proof Program. 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. Their belongings should be also supported by legal documents. Full access to DGT employees’ private account and belongings is a compulsory for the task force.                

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/.