TAXATION: AN

INTRODUCTION

Eko Suwardi, Ph.D, M.Sc

Faculty of Economics and Business
Universitas Gadjah Mada

What is Tax

Payments from tax payers to the

state
Based on the Tax Law
Enforceable
Without direct compensations
To finance state budget

The Function of taxes

Budgetary
To finance state expenditures

Regulation
Government policies in social and
economy.

The Phylosophy of tax

Equity
Lawful
Economical
Financial
Simple tax system
Convenience of payment

Equity

Equity in tax law: All people and

organization who earn above taxable
income are taxpayers. Tax payment based
on the income earned in a particular year.
All other actions that are subject to be
taxed have to pay taxes.
Equity in tax implementation
Tax payers have rights to install, postpone
or complain on their tax payment.

Lawful
Tax

Laws provide legal bases for

taxes in every country.
Tax Laws provide a certainty of
payments that must be made by
taxpayers
Tax Laws are enforceable
Tax Laws protect the rights of
taxpayers and government.

Economic
Taxes are not intended to distort
economy and trades.
Taxes are designated to allocate
resources to strategic sectors.
Taxes are intended to maintain
economic growth

Financial
Tax revenue must be greater than
the costs of tax collection.
Early tax collection is always better
than the late one (time value of
money)

Convenience of
payments
Easier

for taxpayers to pay their taxes

Simplicity in calculating tax payable
Providing free tax assistances
Establishing LTO, MTO to improve
DOTs services for taxpayers.
Encouraging the willingness of
taxpayers to pay by reducing
interface.

Taxation theories

Insurance theory
Interest theory
Capability theory
Devotion theory
Purchasing power theory

Insurance Theory
The state protect the life, wealth
and the rights of its citizens.
Therefore, the citizens have to pay
taxes to the state.

The Interest Theory

Taxes are paid based on how much
interest of the persons to the state.
The more a person needs the state
to serve the more taxes that
person has to pay

Ability Theory
Taxes are paid based upon the capability
of a person to pay the taxes. The
capability is measured by his or her
income to fulfill his or her basic needs.
Objectivity
Based on income
Subjectivity
Based on the minimum basic needs

Devotion Theory
The citizens have to be devoted to
their country. Thus, its is part of
citizens obedience.

The Purchasing Power

theory
Taxes absorb the wealth of society
and transfer it to the state budget.
In turn, the state spends its budget
to finance its expenditure and
investment.

The Systems of Tax

Official Assessment System

Self Assessment System
With Holding System

Official Assessment
System

Tax office (TO) decides the tax

that has to be paid by tax payer.
TO is active whilst taxpayers are
passive;
Tax becomes payable when the
taxpayers receive the letter of
definitive tax decision.

Self Assessment
System

Taxpayers have the rights to

calculate their own tax burden
Taxpayers are active
TO monitors and supervise
TO serves taxpayers.

With Holding System

Third parties (TP) have

responsibility to take taxes from
taxpayers
TPs have responsibility to pay and
repot the taken taxes to the state
This system speedup tax
payments

Tax rates

Proportional tax rate

Fixed rate
Progressive rate
Degressive

Proportional Rate

Fixed percentage
Proportional to the number of
taxable objects.

Fixed rate

Taxes are in a fixed amount

Example: contract tax

Progressive Rate

Percentage greater in line with

the bigger in taxable objects.
Variance:
Progressive-progressive
Increasing incremental rate
Fixed progressive
Fixed incremental rate
Progressive digressive
Decreasing incremental

Digressive rate

Decreasing percentage of tax rate

The bigger taxable object, the
less percentage of the rate.

The Philosophy of Tax

Tax is a social phenomena

The existence of taxes is in the
society
Taxes are the debt of members of
society to the society
Therefore, taxes have to be based
on the tax rule.

The Philosophy of tax rule

Tax is the debt of citizens,

therefore tax is also a contract
It needs to be regulated
concerning: when tax becomes
payable, payment, expiration
period, preference, enforcement,
taking covenant, tax court, and
tax avoidance and evasion.

Why tax law?

Taxation without representation is

robbery
No taxation without
representation.

Pancasila

Ketuhanan Yang Maha Esa

Kemanusiaan Yang Adil dan Beradap
Persatuan Indonesia
Kerakyatan yang dipimpin oleh
hikmat kebijaksanaan dalam
permusyawaratan/perwakilan
Keadilan Sosial bagi seluruh rakyat
indonesia.

Believe in God

Taxes do not depart from any

religion
Religion tells us to help other
peoples
The social welfare becomes our
responsibility

Humanity
Taxation has to respect to
humanity
Taxation is part of our
government effort to increase
welfare

Indonesian Unity

Tax creates social solidarity

Helping one to another
The benefits of tax are equally
distributed to the society
Thus, increasing the awareness of
Indonesians to be unite

Democracy

Tax laws are resulted from

agreement among the related
party
The implementation must be
backup by wisdom
Tax becomes a contract between
society and the government

Social justice

Tax has to be used for public

welfare
Improving public facility to reduce
the gap between the have and the
have not.
Eradicating poor people and street
children.
Improving education

Adam Smiths Tax Principles

Equality and equity

Certainty
Convenience of payment
Economic of collection

Tax classification

Direct vs Indirect taxes

Subjective vs. objective taxes
Central Government vs. Local
taxes

Direct Tax in Indonesia

Taxes that are taken directly from
intended taxpayers (not through
third parties)
Examples: Income tax, Fiscal tax,
Property tax, vehicle tax.

Indirect Tax in Indonesia

Taxes that are taken indirectly from
taxpayers; that is through third
parties (with holding tax)
Examples: Value added tax (GST),
income tax article 21, import tax.

Subjective Tax in
Indonesia

Tax that is applied to taxpayers

with respect to the subjective
condition of taxpayers.
Example: Income tax

Objective Tax in
Indonesia

Tax that is applied to taxpayers

regardless the subjective
condition of taxpayers
Examples: VAT (GST), Fiscal tax,
Final income tax.

Tax Laws Indonesia

Pancasila as state philosophy and

resource of state laws.
Introduction and article 23 of UUD45
Tax regulations (laws)
Presidential decree in taxation
Ministerial decree or DGOT
Regional tax rules for regional tax.
(Perda)

The Classification of tax

laws

Material Tax Laws

Formal Tax Laws
Cooperation with taxpayers
Cooperation with third parties
The Secrecy of fund in Bank and
Tax

Who are Taxpayers?

Residential tax base

Source of income tax base
Nationality base

Tax law interpretations

Grammatical interpretation
Historical interpretation
Systematic interpretation
Sociological interpretation
Interpretation based on analogy
Legal formal interpretaion

When tax payable

emerges?

Substance
When taatbestand
Formal
When TO concluded the tax
payable

The Role of third parties

Increase the probability of tax

collection
Sometimes taxpayers are
unidentified
Helping taxpayers in fulfilling
their responsibility by taking out
tax from taxpayers income.

Tax collection

Tax collection based on actual tax

object
Tax collection based on expected
or predicted tax object
Tax collection based on both
actual and predicted tax objects

When tax payable is

up

Has been paid

Compensation
Tax amnesty
Expired

Types of Taxes

Income tax
Value added tax (GST)
Property tax
Legalization tax
Local tax,
Property acquisition tax

Income Tax

Taxpayers
Tax object
Tax object exception
Expenses
Taxable income
Non taxable income
Tax rate

Taxpayers
Who are they:
Individual;
Un-owned wealth
Organization;
Permanent Establishment.

Income Tax Objects

Tax object is any increasing

income which is obtained by
taxpayers either from overseas or
domestic that can be consumed
or added to their wealth in any
name or form.