The recent resignation, heavily encouraged, of the Finance Ministry’s director general of taxation, Sigit Priadi Pramudito, and the absurd tax collection target this year can be put down to one disturbing cause: President Joko “Jokowi” Widodo’s failure to listen to a few good men.
As predicted by many, a disaster in the making was already around the corner when the President, still in the process of learning the ropes of national leadership, gathered all high-ranking tax officials at the Presidential Palace one afternoon in November last year.
Instead of delivering the rationale for determining the amount of tax the Finance Ministry’s directorate general of taxation would need to collect in 2015, the President jumped into demanding a 60 per cent increase in collection — a demand that perplexed everyone in the room.
What ensued, according to several participants in the meeting, was robust haggling similar to that encountered in a traditional market between vendors and customers, when the President vehemently had the final say and reduced his initial demand to 30 per cent, higher than the 20 per cent cautiously suggested by Finance Minister Bambang Brodjonegoro.
The ambitious target was the biggest rise in the country’s history of tax collection, with the tax directorate needing to collect an additional Rp 600 trillion (US$43.8 billion) at a time when Indonesia was grappling with a new global economic slowdown that saw company profits tumbling to their lowest levels since 2008.
How exactly did Jokowi come up with the initial 60 per cent, and subsequent 30 per cent, demand? According to several officials, Jokowi was duped into believing that tax collection could actually be doubled in just one year as asserted by his supporters in Transition House before he was sworn in as president on Oct. 20, 2014.
These supporters, mostly mediocre activists with qualifications in politics rather than in tax collection or macroeconomics, apparently had the ear of the then President-elect at a time when those with sufficient qualifications were considered to be lacking in creativity or suspected of being part of the old regime.
As Finance Ministry officials were grappling with ways to meet the ridiculous target, Jokowi chose the chain-smoking Sigit in February out of four candidates for the tax chief job. The candidates were proposed by an independent panel consisting of active and former officials.
But according to several politicians, Jokowi’s selection of Sigit was based more on lobbying by a senior and powerful Cabinet member, whose close aide has family relations to Sigit.
Although Sigit expressed no reservations about meeting the tax-collection target when confronted by Jokowi, word about the former’s pessimism over the target began to circulate among Finance Ministry officials after he was overheard complaining about the herculean task he had taken on at several wedding receptions between April and May.
Complaints were lodged by Sigit’s staff, who felt that they had not received any clear directions on how to implement his policy and there were no breakthroughs in broadening the country’s tax base by netting new taxpayers.
Sigit also had trouble being accepted by many competing factions in the tax office, several of whom ignored his instructions, and he had little authority over his staff.
Due to the lack of direction, most tax officials largely occupied themselves with “hunting in the zoo” in their attempts to meet the collection target — a situation that infuriated many businessmen who had met their tax obligations.
Sigit is also blamed for the delay in drafting the much-anticipated tax amnesty bill, forcing Jokowi to assign Coordinating Political, Legal and Security Affairs Minister Luhut Pandjaitan in September to lead the drafting along with Vice President Jusuf Kalla’s chief advisor and businessman Sofjan Wanandi, powerful Golkar Party politician Ade Komarudin and several officials from the Finance Ministry.
Politicians from all quarters have also complained of Sigit’s inflexible and unresponsive communication style that made it difficult for them to cooperate, although there were also reports that certain politicians demanded the tax chief promote their “people” in the tax office to echelon 2 and 3 jobs.
According to sources at the Finance Ministry, the idea was floated to Jokowi in August to have Sigit immediately replaced due to his poor performance. However, the President insisted on keeping him until the time was right for his replacement.
But officials at the Presidential Palace, the Finance Ministry and the Office of the Coordinating Economic Minister could no longer tolerate Sigit’s actions when he revealed to the media that the President was in a panic after he met him in early November to report on the massive tax shortfall.
As of early November, tax collection had only reached 60 per cent of the target, according to the tax office, the worst target achievement in history.
Under pressure from all quarters, Sigit resigned 10 months into his job on Tuesday, citing his inability to lead the tax office toward meeting the collection target.
Jokowi may have learned his lesson well prior to Sigit’s resignation as he has proposed only a 4 per cent rise in the tax office’s collection target next year to Rp 1.36 quadrillion, which will be mostly achieved through the tax amnesty program.
The appointment of veteran financial bureaucrat and former tax chief Darmin Nasution as Coordinating Economic Minister in August boosted the strength of the Cabinet faction that promotes common sense and integrity in the making of government policies.
Going forward, the President should listen more to his own chief economic minister and finance minister instead of to certain individuals in the Cabinet who have vested interests and no authority in state budget management.
It is about time as well for the finance minister, as the bastion of state budget guardianship, to have the courage to say “no” to any request from the President that might compromise or undermine the state budget.
Sadly, the most immediate fallout from the tax-management fiasco is the lost opportunity this year to reform tax collection, which contributes roughly 70 per cent of state revenues. It is perhaps an expensive price that Jokowi has had to pay for listening to the wrong people.