In Ancient Mesopotamia, people who couldn’t pay their taxes in currency could provide livestock, food or labour instead. This barter system doesn’t tend to work with most tax systems today. Instead, people who can’t pay their taxes on time are actually committing tax fraud.
Indonesia’s national tax department, Direktorat Jenderal Pajak (DJP), is using data to ensure more people pay tax. “With the pandemic, we are forced to go through these digital transformations”, says Iwan Djuniardi, Director of ICT Transformation at DJP.
GovInsider spoke to Iwan to discuss the tax office’s vision for digitizing Indonesia’s tax services, and how this will reduce tax fraud in the future.
Only a third of Indonesian taxpayers filed returns in 2017, according to Reuters, which demonstrates the scale of the challenge. Government announced plans to tackle this in 2018, including a ‘tax amnesty’ to allow people to move their money onshore, and investment in new tech. The country improved their composite score on tax systems on the World Bank’s Ease of Doing Business report by 2020.
Data can help Indonesia improve its approach to tax services, Iwan believes. “We built a system based on the behaviour of taxpayers so we can predict whether the payment will be fraudulent or not, particularly for fast VAT fraud detection”, explains Iwan.
This data can also be used to advise policymakers .“No matter how much we increase our technology and our administration system, we have to look for holes in the policy”, he says.
The tax department has an ongoing partnership with the Behavioural Insights Team to reduce late payments. This partnership culminated in a Behavioural Insights Task Force within the tax department.
The task force interviewed Indonesian taxpayers, and used their insights to design emails to encourage tax payment on time. Thanks to ‘nudge’ economics, Indonesians paid USD13.53 million extra in taxes by the deadline in 2017 alone. In the future, the task force hopes to reduce underreporting of tax liabilities and improve data quality.
The department also uses social media to fill any gaps in data collection. “If we don’t have data from our database, we try to collect data from social media so we can make connections..and make our analysis stronger”, says Iwan.
Another focus for Iwan has been making it easier for citizens to pay. Online forms and e-billing reduces errors like double counting or skipping payments, he says.
They are also partnering with local banks and post offices to improve access to digital services. “We manage our middleware and the back end [of collecting tax], but the front end will be handled by a third party”.
The department implemented a strategy to digitise tax related enquiries. It allows people to access basic services online; make enquiries at a call centre; and approach a physical counter at the tax office for further assistance.
Cyber security is increasingly important as the tax office digitises, he says. The main challenge is “insider threats, because more than 40,000 people deal with our IT [systems]”, explains Iwan. This includes unauthorised remote working, bots collecting private information, and phishing.
The tax office uses three tools to address these challenges. It uses VPN servers and checks logins against employee databases to prevent unauthorised remote working and scams. Meanwhile, data analytics picks up any anomalies like bots trying to access systems.
Data and automation have transformed Indonesia’s tax collection process, from preventing fraud to protecting data. With this digital system, perhaps even the Ancient Mesopotamians would’ve paid their taxes on time.