Cheating at tax office raises concern

Rendi A. Witular, The Jakarta Post, Jakarta | Wed, 05/05/2010 9:50 AM

A series of recently uncovered tax crimes in several major cities has highlighted at least three methods of cheating on taxes, most of which have been regularly used for at least five years.

According to a preliminary investigation at the tax office, the mostdevastating method is the engineering of fictitious refund claims from value-added tax.

This method is to make fictitious transactions between firms to create the impression that one of them has paid an excessive amount of tax to the government. Through loopholes in the tax system, the firm then files a claim in the form of a tax refund.

Finance Minister Sri Mulyani Indrawati on Monday said this practice was employed by a North Sumatra business group she identifed by the initials PHS. The head of the group is believed to have fled the country after embezzling Rp 300 billion (US$33 million).

Tax officials say fictitious refund claims have been used since a decade ago with no slight effort seen to plug loopholes in the system that allow the crime to continue.

Each year, the tax office says it pays around Rp 30 trillion ($3.3 billion) in refunds to taxpayers, mostly without proper verification.

“It’s been an issue for years,” Directorate General of Taxation’s head of expert staff for supervision Wahyu Tumakaka said on Tuesday.

“There have been numerous internal discussions about the need to change the refund system but no progress has ever materialized.”

Apart from fictitious refunds, another major method to evade taxes includes abusing the “sunset” policy applied in 2008. Under the policy, taxpayers are exempted from paying penalties should they agree to honestly disclose hidden assets and income.

Taxpayers ended up using the policy to launder illicit funds or to commit future tax crimes by inflating the value of their assets and income. A taxpayer can also be employed by other parties to claim their assets or funds, which are retrieved from illicit sources, for laundering.

“It was a one-time policy. However, it was used widely as a tool for money laundering,” legislator Mukhamad Misbakhun said before being arrested by police on April 25 for allegedly embezzling funds from Bank Century, now renamed Bank Mutiara. Misbakhun is a former tax official familiar with the criminal methods at the tax office.

A review by the tax office of its success rate of the sunset policy is still ongoing.

Another tax evasion method, widely preferred by low-ranking tax officials due to its unsophisticated nature, involves creating a fictitious tax invoice and tax payment receipt for transactions regarding property and land.

“This method is popular in regions,” suspended West Java tax official Andri Hardukadi said recently.

Police have recently uncovered a syndicate using this method to embezzle potential tax revenue worth more than Rp 300 billion in Surabaya, East Java.

Such cases have also occurred in Bandung, West Java, in 2007.

“I believe tax officials in West Java still employ the very same methods used in Surabaya as we speak,” Andri said during an interview at Bandung’s Kebonwaru Penitentiary.

Andri was arrested in April last year by the tax office’s internal supervision division for alleged involvement in making fictitious tax invoices and receipts.

The division found more than 100 bundles of taxpayer documents stashed in Andri’s van, house and car rental firm.

The documents were related to taxpayers’ property and land transactions, sunset policy, income tax, and value added tax refunds.

“I took the documents out of the office to work on at home. I did not use them to commit tax crimes,” Andri said.

Under the existing regulations, taxpayer documents are highly classified and can only be used inside the tax office.