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Fintech can improve SME tax compliance: Experts
Given that financial technology (fintech) helps ease the tax-payment process, experts agree it can improve tax compliance among the country’s 60 million small and medium enterprises (SMEs), which often complain about complex paperwork and ever-changing tax regulations.
“The easier the administrative work, the higher the willingness to pay,” said Center for Indonesia Taxation Analysis (CITA) executive director Yustinus Prastowo during a discussion on finance and tax in Jakarta recently.
Even tax authorities, he said, would benefit from fintech because it would automate their side of data processing as well as providing a platform to inform taxpayers about changing regulations.
Fintech offers a new solution to the age-old problem of tax collection from SMEs, which contribute a fraction to the national tax collection despite contributing up to 60 percent of the gross domestic product.
Recently, the Finance Ministry's taxation directorate general reported SMEs contributed less than 1 percent (Rp 5.4 trillion) of the government tax collection target of Rp1.42 quadrillion for 2018.
Furthermore, the directorate reported only 1.69 million (3 percent) out of 60 million SMEs were registered taxpayers as of December last year.
Fintech companies like Harmoni, an accounting software start-up based in Jakarta, may help alleviate the problem by simplifying tax paperwork for individual businesses.
“The tax process has three phases: calculate, pay and report. Fintech helps by handling either one or all three of these phases,” said Harmoni chief executive officer Andoko Chandra.
Harmoni’s product, for example, specializes in the calculating phase by automatically generating financial reports such as income statements and balance sheets based on input from either the client or the client’s bank.
He said companies like his could improve SME tax compliance by building a habit of financial reporting, which would then be the basis for tax reporting.
“If you have financial reports, you basically have your tax reports,” he said.
Indonesian Fintech Association (AFTEK) public policy director Ajisatria Suleiman agreed on the merits of fintech but pointed out that “there still isn’t a single platform that fully integrates the tax process.”
For example, accounting software Moka specializes in point of sales transactions, payment gateway Midtrans in payment and OnlinePajak in tax filing.
“If all these services were to be integrated, that would greatly help tax compliance,” he said.
Homegrown unicorns Go-Jek, Bukalapak and Tokopedia also recently opened up their e-payment services for land and building tax (PBB) and vehicle tax, although their main purpose was to promote cashless transactions rather than improve tax compliance.
Tax office spokesman Hestu Yoga Saksama concurred with Yustinus on the regulatory benefits of fintech in tax collection saying fintech could provide, for example, better regulation of investors and debtor SMEs.
“Fintech could ensure investors and debtors have a valid tax number [NPWP] and report transaction values to the tax office,” he said, noting that his office was still working on the exact terms for such a regulation.
Hestu also mentioned the ongoing government dilemma on how to tax fintech companies, which often blur the line between a technology company and a financial service.
“As a financial service, they are obligated by law to register themselves and report investor information,” he said.
Similarly, Yustinus reiterated that even though fintech could help improve tax compliance, the government also needed to further incentivize SMEs to become taxpayers, such as when it slashed SME income tax from 1 percent to 0.5 percent last year.
“The tax office, Bank Indonesia, Financial Services Authority and ministries also need to create policies that incentivize SMEs to become taxpayers, such as by helping them access bank credit and local markets,” he said.
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