View of Complexity And Socialization Of Taxation Rule In Affecting The Taxpayer Accounting Behaviour In Indonesia

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The International Journal o f Accounting and Business Society’

COMPLEXITY AND SOCIALIZATION OF TAXATION RULE IN AFFECTING THE TAXPAYER ACCOUNTING BEHAVIOUR IN

INDONESIA Dr. Tar jo, S.E., M.Si.

Abstract

Complexity in this study refers to the numbers and varieties o f elements related to taxation rule. Socialization refers to mentoring which organized by tax-institution (Fiscus) through the counseling for taxation practice, service and control. Taxpayer obedience is one o f taxation success measurement. Complexity and socialization taxation * rule influences taxpayer obedience in fulfilling their taxation obligation.

The complexity o f taxation rule will be tricky for the taxpayer for understanding taxation. The lack o f socialization on taxation rule will make the t a x p a y e r flustered to counting, make payment, and deposit their tax burden.

In favor o f these difficulty and confemployedness, the taxpayer needs assistance from professional on taxation. Their assist will improve obedience cost and encourage the taxpayer to generate accounting artificial to minimize taxes. The greater obedience cost and enlarger accounting artificial will encourage the taxpayer for being more disobey.

Keywords: Taxpayer, Complexity, Socialization, Taxation rules, Accounting behavior, Obedience cost, Obedience.

A. INTRODUCTION

A g o o d taxation system is w hich can m inim ize o b e d ie n c e disparities;

it is d isc re p a n c y betw een the taxes actual burden and the actual tax that society should pay (R e sm i, 2003). T h e re are several effort to m in im iz e s this disparities, (a) selecting the unlisted taxpayer, (b) inventorying the ta x p a y e r w h o does not pass N otification Letter (SPT). (c) investigating tow ard the ta x p a y e r w ho reports th at their taxes is sm aller than proper, (d) c o llectin g back taxes by s ending co m p u lsio n letter, confiscation, auction and to physical forcing (,gijzeling) if needed.

O n Ja n u a ry 1st, 2001 Indonesian g o v e rn m e n t e ffe c tiv ely validate the R egulation N o. 17 y ear 2 000 regardless to Incom e T a x to replace the R egulation N o. 7 y ear 1994 that previously c hanges the R egulation No. 7 y ear 1983. T rough regulates those new/ taxation rule tax p ay er definitely will m ore c o m p licate for reco g n izin g taxation rule. W estat in Jackson and M illiron (1986) argues that co m p le x ity in creases am b ig u o u s for tax-payer. further en co u rag e disobedience. Milliron (19 8 8 ) finds that am biguity within taxation rules

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p ositively correlates to d is o b e d ie n c e in c o m p o s in g incom e tax accounting.

T h ereb y , it can be stated th at the hig h er o f taxation rule c o m p le x itie s, the lower ta x p a y e r o b e d ie n c e for rep o rtin g their tax obligation.

T h e c o u n s e lin g practice as m ethod to socialize taxation rule is p urposed to ea sie r ta x p a y e r to recognize the taxation rule. D a m a y a n ti (2004) d e m o n s tra te s th at th e fu n ctio n o f taxation co u n se lin g did not a p p e a r fluently.

W h ereas, taxation re fo rm a tio n occurred in y e a r 2 0 0 0 w h ich should be socialized to e v ery ta x p a y e r, h o w e v e r the research fo u n d s that 58,1%

resp o n d e n ts state not k n o w in g a b o u t th o se c o u n se lin g pro g ram . S ocialization intensity w h ich rep eated and F is c u s ’s proactive attitude in g iv in g direction, cou n selin g , and instructions prevalently to the ta x p a y e r will e n c o u ra g e the o bedience.

W ithin taxation context, o b ed ie n c e cost is affected by the c o m p le x ity and socialization o f tax atio n rule. C lotfelter (1 9 8 3 ) finds that the c o m p le x ity o f taxation rule tend to increases g enerate potential tax ev asio n . T h e ta x p a y e r o b e d ie n c e cost should be low if taxation rule is plain and the intensity socialization is b eing p re v alen tly and c ontinually cond u cted .

B. THE EFFICIENT TAXATION SYSTEM

In s e l f assessm ent system, responsibility o f the e v a c u a tin g task to g a th erin g tax as a reflection a taxation o bligation reg a rd in g ta x p a y e r itself.

T h ro u g h this sy stem , th e taxation adm inistration is ex p e c te d to be sim ply o rg an ized and easily to be recognized by the taxpayer. T h e s e are needed to reinforce c o n s c io u s n e s s im p ro v e m e n t and ta x p a y e r resp o n sib ility to m eet their tax o bligation.

S e lf assessm ent system research w as c o n d u cted by D am a y a n ti (2004).

T he fo u n d in g presents the a rra n g e m e n t o f p ay m e n t and rep o rtin g functions has been c o n d u c te d by the tax p ay er. H ow ever, o b v io u sly that a c c o u n tin g function u n c o m m itte d m a x im a lly by the taxpayer, as based on her research data, 9 3,5%

ta x p a y e r unable to m a d e self-co u n t on their burden and the a c c o u n tin g function u n c o m m itte d m a x im a lly by 4 2 ,5 % ta x p a y e r as the a c c o u n tin g function is still done by Fiscus. T h is research c onfirm s the tax p a y e r e m p o w e r m e n t, on e o f s e lf assessm ent system p urpose, has not finely achieved yet.

T h e a u d itin g function w h ich org an ized by tax-institution (F iscu s) is structured in o rd er to o rg a n iz e the fully-responsibility d istrib u tin g o f the tax impose, to. .the ta x p a y e r, in respect to the T a x R egulation. T h o u g h based on D a m a y a n t i ’s in terv iew s (2 0 0 4 ) with the taxpayer, it is o b v io u s that auditing function w h ich o rg a n iz e d by Fiscus is arranged e x ag g erated ly . Below are the qu o tatio n s o f her interview' with the ta x p a y e r resp o n d e n t in D a m a y a n ti's research (2004):

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R esp o n d en t D:

“A bout N ovem ber - December, tax officer often com e to our house to collect the back taxes. A lo n g w ith this, they intim idate us by carrying confiscation letter

R esp o n d e n t E:

" W e go t a w arning letter consist o f the back taxes several times, which actually has been p a id a n d we have SS P ( Tax D eposit L e tte r )''

T h at quo tatio n s a b o v e proves th at before official assessm ent system begun about before M arch 3 1 ^ fo unded on the R egulation N o. 1$ y ear 2000, the tax apparatus has arranged s e lf assessm ent system, w h e re a s it o u g h t to be done after the tax p ay er delivers N otification Letter (SPT). Even related to those in terview s the tax apparatus has released the confiscation letter and the taxpayer w h o se actually has fulfilled his duty still get the w a rn in g letter. Based on this fact. Fiscus has e x a g g erated ly arranged the auditing function w ith o u t follow ing the valid taxation rules.

Fiscus, in giv in g service to the taxpayer, is exp ected to build co m fo rt and easiness for the ta x p a y e r in fulfilling taxation o bligation. D a m a y a n t r s research (20 0 4 ) fo u n d in g pro v es that the tax p ay er is un w illin g to ask or seek to the T ax Service O ffice th at w as the part o f service function, since the tax p a y e r has bad perception to w ard Fiscus. T h e quotation o f D a m a y a n .tr s interview (2004) with her re sp o n d en t as followed:

“When I a sk the tax a p p a ra tu s’s a id to count taxes, it is surprised that the tax which I have to p a y is so high, till reach dozens m illion rupiah. How ever, apparatus offers other alternatives to p a y more less taxes by condition o f the taxpayer must p a y the h a lf taxes to the g overnm ent via tax office, a n d the rem ains given to the apparatus

T hat interview a b o v e is a w itness that is hap p en ed to the ta x p a y e r and there are still m any ta x p a y e r th at experiences the sam e thing. T herefo re the ta x p a y e r perception th at the tax apparatus j u s t m ake confuse, difficult, and- m ust be avoided. T his perception will obstruct t h e purpose o f s e lf a ss e s s m e n t system;

that is to increase c o n sc io u sn e ss and tax p ay er responsibility, as the cash does not add the g o v e rn m e n t incom e but fall in to the tax a p p aratu s pocket.

In o rder to evaluate the efficiency level o f taxation system , Sadhani (2004) proposes that there are tw o basic elem en ts that a lw a y s are references; (1) the cost o f taxation adm inistration, and (2) the cost o f taxation obedience (c o m p lia n c e o f taxation). T he taxation system will be efficient if costs o f both

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elem en ts are low. T h e efficient taxation system will be a c h iev ed if the ec o n o m ists and p articularly the c o m p an y apply good co rp o ra te g o v e rn a n c e system. T his system should be a guarantee that the e c o n o m is ts obey the rules and tax c o m p lia n c e in d o in g their activities.

In s e l f a s s e s s m e n t system process, the ta x p a y e r d o es not fill the tax form and b eing investigated by Fiscus. T he issue that m ust be c o n p a rty re d is the necessity o f the sig n ific a n t k n o w le d g e related to taxation and its rules w hich is explicitly, m utually, sim p ly , clearly, u n am b ig u o u sly , and constantly suggested and c o n v e y e d fu rth e r to the taxpayer, th erefore there is no incorrect interpretation.

C. THE COMPLEXITY OF TAXATION RULES

A c o m p le x ity p resen ts elem ents q uantity and varieties in external e n v iro n m e n t (H a tc h , 1997: 89). W ithin taxation context, e n v iro n m e n t is every part w h ic h c o n c e rn e d on tax atio n rules. T axation rules will a v o w e d c o m p le x if its rules often vary, the lan g u ag e is hardly understood, tricky and took many a d m in istrativ e re q u ire m e n ts, and needed short tim e co n firm th e n ew taxation rules (S ia h a a n , 2005). T h e up w ard o f t a x a tio n ’s c o m p le x ity rule level could o bstruct ta x p a y e r to arran g e tax reports. T h erefo re c o m p le x ity o f taxation rules is the c o m p lic a te d n e s s and the difficulty in u n d e rsta n d in g taxation rules' principals w h ich are faced in taxation laws and im plem entation rules.

W ithin idea fra m e w o r k in figure 1, the co m p le x ity o f taxation rules will create am b ig u ity to w a rd ta x p a y e r w hich will influence their decision m a k in g to fulfill th eir tax obligation. Several researches a bout the co m p lex ity o f taxation rules found that th e ir result w ere inconsistent betw een o n e and another. T h e se fo u n d in g d e m o n s tra te d if tax atio n rules create am b ig u ity for ta x professional, they will act m o re s u b m is s iv e in a rran g in g th eir tax reports (K a p la n et al., 1988;

Schisler, 1994; Shields et al., 1995; Spilker et al., 1999). As C lo tfe lte r (1983) sh o w ed that in fact the c o m p le x ity increases the occasion to avoid tax.

Based on K a h n e m a n and T versky prospect th eo ry (1 979), as cited on Zandjani (1992: 4 1 -4 2 ) a rg u e that the perception o f ta x p a y e r to w ard the sim plicity and law p o w e r will influence ta x p a y e r b e h a v io r and taxation succeed.

T h e ta x p a y e r u n d e rs ta n d in g to w a rd taxation rules has im portant function, since this is o n e o f co g n itiv e e le m e n ts o f ta x p a y e r attitude to w a rd tax atio n rules, and taxation attitude affect tax atio n b eh av io r o f taxpayer, and finally, taxation b eh a v io r influences the o b e d ie n t o f taxpayer.

T h e research a bout taxation co m p lex ity is also co n d u c te d by M agro (1999) w hich took 20 m a n a g e rs as participant, w h o w o rk in g in large accountant co m p an y and h a v in g e x p e rie n c e for 5-22 years. R e s e a rc h e r found that participant face co m p le x ity , am big u ity , and skill in taxation p la n n in g condition to ju s tify the h ig h e r o n e than in su b m issiv e condition. T he results o f this 58 Complexity and Socialization o f Taxation Rule in Affecting the Taxpayer

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research prove that the c o m p le x ity o f taxation rules ten d s to be puzzling for ta x p a y e r in such a w ay it will m otivate tax p ay er for being m ore obedient.

From the party o f co m p le x ity state, Spilker et al., (1 9 9 9 ) presents that (1) tax professional interprets taxation rules based on very a g g re ssiv e condition;

(2) the am b ig u ity o f taxation rules is interpreted based on condition w hich gives ad v an tag es for client in the context o f obedient not im pacts o f the c om plexity o f taxation rules. T h e research finds that there are im pacts o f the c om plexity o f taxation rules tow ard d iso b ed jen t cost; this finding is co n sisten t with the research (Jackson and Jones, 1985; N am et al., 2002; Siahaan, 2005). Thereby, it can be said that the higher co m p lex ity o f taxation rules, then the obedient cost will get hig h er also. T he hig h er o bedient cost is c a e m p lo y e d by tax p a y e r who g enerally asks the tax professional aid. T hese aids c a u se the increasing o f internal d iso b e d ie n t cost w h ic h is c o m p en satio n (b o n u s) for ta x professional.

With the help from tax professional, tax p ay er c o n d u c t a c c o u n tin g artificial in purpose to m in im iz e tax w h ich should be paid.

T ax atio n rules should be m ade sim ply if there is w ell-b u ilt integration a m o n g all related parties, that are g o v ern m en t in th is c ase tax directorate general (D irjen Pajak), Indonesian legislative assem b ly (D P R ), taxpayer, tax professional, and aca d e m icia n w h o is involved c o m p re h e n s iv e ly in the a rran g in g p ro c e ss o f taxation rules. In testing the su b se rv ie n c e o f obligation, taxation is alw ay s be guided by the taxation certainty o f legislation rules, while in arranging financial report the c o m p an y is alw ays guided by financial acco u n tan cy standard (S tan d ar A kuntansi K e u a n g a n /S ^ /Q . T he less u n derstanding on the taxation c e rta in ty -o f legislation rules m ay ca u se taxpayer not paying tax or paying tax but not accord with valid tax rules.

D. TAXATION RULES SOCIALIZATION

T h e main fun ctio n s o f tax directorate general (D irek to rat Jenderal Pajak/ Fiskus) in s e lf a s se ssm e n t system are e m p h asized on three points: the d e v e lo p m e n t th ro u g h taxation k n o w le d g e counseling, service and control. The socialization o f th o se three Fiskus functions h a s n ’t been co n d u c te d m axim ally;

even there is m isap p licatio n o f th ose three functions in the practice.

T h e c o u n s e lin g im p lem en tatio n is intended to e m p o w e r the tax p ay er to c o m p re h e n d m ore a b o u t taxation rules. Dam ayanti (2004), presents that the function o f taxation c o u n se lin g does not be em ployed well. In the y e a r 2000 the research found that 5 8 ,1 % o f respondent recognize no th in g about the counseling, w h e re a s there is the taxation reform ation o ccu rred th at should be socialized to w h o le t a x p a y e r . ...

T he F iskus inefficiency in co n d u ctin g socialization or taxation co u n selin g will give im pact tow ard s e lf c o unting function by taxpayer.

T herefore, this w ill affect the tax p ay er that unable to a c c o m p lis h s e lf counting function o f how m uch tax that should be paid, as that ta x p a y e r c o m p lain when they are interview ed by D am ay an ti (2004) as follow:

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"There are m any times, we g o t tax w arning letter, about tax w hich is still g o in g into debt w ith a very big amount. O ff course, we do not m in d as long as we know such big am ount com ing fr o m where. It is because, up till now we do no t know how the right calculation exactly. The socialization does not exist ”.

B ased on such in terv iew result above, it presents th at Fiskus is less d o in g the right c a lc u la tin g function. In fact, to a c co m p lish the right calculation function, the s o cializatio n should be co n d u cted co n tin u o u sly . T h e c o u n se lin g is s ig n ifican tly n e e d e d as it gives benefits to ta x p a y e r th at jo in s c o u n se lin g to u n d e rsta n d and re c o g n iz e th e c h a n g e o f taxation rules and h o w to c o u n t the rate o f paid tax. T h e n w h a t should be a cco m p lish ed by Fiskus is m aking socialization to t a x p a y e r unifo rm ly and continuously.

In fact, c a lc u la tio n function has not been c o n d u c te d m ax im ally by D am a y a n ti ta x p a y e r (2 004), because 54.8 % ta x p a y e r w h o b e c o m e D am ayanti resp o n d e n ts unable to calculate the back tax by th em selv es, w hile 45.2 % ta x p a y e r h ave not realized yet the calculating function b ecau se it is still c o n d u c te d by F iskus. B a s e d on that research found, it presents that the tax p ay er e m p o w e r m e n t w h ic h is o n e goals o f s e lf asse ssm e n t system has not attained m a x im ally .

C o n tin u o u s socialization intensity and F is k u s ’ p roactive attitude in giv in g g u id a n c e , c o u n se lin g , and instruction to ta x p a y e r uniform ly will support the rise o f ta x p a y e r o bedient. T h e less socialization w hich causes the unknow n on tax rules w h ich has im p a c t if ta x p a y e r tends to do a c co u n tan cy m ad e up to m in im iz e tax responsibility.

O n th e o th e r party, tax directorate general (D irjen Pajak) also does not e x p e c t if they a lw a y s be called d o in g less taxation rules socialization. T hen is social interest to w a rd tax socialization still low? To a n s w e r this, the interview quotation with S u m ih a r P. T a m b u n a n , D irector PPh o f tax d irectorate general (In d o n e sia T ax a tio n Jo u rn al, April 200 3 ) as fo llo w :

Indonesia Taxation Journal:

H ow f a r the changes in notification letter (s w a t p e m b e rita h u a n / SPT) are socialized?

Sum ihar P. Tambunan:

Before that S P T is sent, we have so cia lized those changes to society. We sta rte d fr o m association, m ass media, to taxation sem inars. Socialization is done in dom estic tax service offices a n d dom estic branch offices (kanwil-kanwil).

Ju st m ost o f the times, i f taxpayer are invited; the one who com es is the driver. Sc it seem s to be not w illing to be 60 Complexity and Socialization o f Taxation Rule in Affecting the Taxpayer

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socialized. Well, i f it happened like this, it is sa id to be less socialization. Therefore, f o r taxpayer p erso n a lly it is possible, the ones who sho uld report that sha ll be association or taxpayer groups.

B ased on th o se in terview quotations, it presents that in fact tax directorate general has m a d e efforts to do socialization o f taxation ch an g es to society th rough v ario u s media.- H ow ever, D a m a y a n ti's research (2 0 0 4 ) finds th at taxation rules socialization does not conducted m ax im a lly and evenly. So, acc o rd in g to the writer, tax directorate general should keep m a k in g efforts in increasing taxation rules socialization to society. Even as w h at is d o n e in Japan, the taxation rules socialization gets started from e le m e n ta ry school. With tax socialization in early ages, then in short time the students will c o n v e y it to eac?h parents and in long tim e if those students later b e c o m e taxpayer, it is expected to increase th eir ow n a w a re n e ss to pay taxes. With early education, it is e xpected to un d erstan d co m p le te ly the important role o f taxes in financing nation needs and local g overnm ent.

E. TAXPAYER ACCOUNTANCY BEHAVIOR

E arnings g e n erally are e m p lo y ed as a m e a s u re m e n t o f the business succeeds. Earnings are often e m p lo y ed as basic for m a k in g decision o f various related partys, for e x a m p le it is e m p lo y ed as basic to calculate ta x p a y e r incom e, and also e m p lo y e d as the evaluation criteria o f c o m p a n y 's p erfo rm an ce.

B ecause o f that, m a n a g e rs often utilizes the o p p o rtu n ity to create profit value (earning m a n a g e m e n t) with accrual engin eerin g to m in im iz e ta x p a y e r income charge w hich should be paid by the com pany. E arnings m a n a g e m e n t is realized by increasing accrual n u m b e r to m ake the profit lo w er or higher (D haliw al et al., 1994; G u en th er, 1994; Frankel, 1994; C loyd et al., 1996; M a y d e v , 1997).

T here are so m e m a n a g e m e n t m otivations in doing earn in g s m a n ag em en t, that (Scott, 2003: 3 6 8 -3 8 3 ) there are b o nus w hich are based on earnings, political m otivations, tax m otivations, the ch an g e in c h ie f o f ex ecu tiv e officer, and the ch an g e o f d o in g Initial P ublic O fferin g (IPO).

Incom e taxation is sufficient to give m a n a g e m e n t m otivation to create profit. H ow ever. Fiskus part) has their ow n rules in arran g in g account or ta x p a y e r acco u n ta n cy , so it decreases the m o v e m e n t space o f c om pany m a n a g e m e n t to realize earn in g s m anag em en t. Many researches in United States e x a m in e the im pact o f selecting evaluation m ethod o f LIFO and F IF O supply and its effects on in co m e tax charge, for e x a m p le the research c o n d u cted by D haliw al et al. (1996); C loyd et al. (1 996), the fo u n d in g represents that m any c o m p a n ie s prefer L IF O m eth o d to save incom e tax.

In U nited States, there are m any em pirical researches e m p lo y taxation reform ation w hich is kn o w n as Tax Reform Act (T R A ), to evaluate b ehavior o f earnings m a n a g e m e n t c o n c e rn e d with m in im izin g tax. T he research finding has been failed to prove th at d e creasin g the tax rate may influence the accrual profit

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c o m p a n y ’s po licy to m in im iz e incom e tax charge, ( G u e n th e r (199 4 ), w h ile the research w h ic h fo c u se s on y ear-end p u rch asin g d ecision and y ear-end p u rchasing, with L1FO m e th o d , will give low er in centive before the validation o f T R A , so there will be Frankel and T re z e rv an t ( 1 9 9 4 ) 's tax savings.

T h e research w h ich is conducted by Setiawati (2 0 0 1 ) in Indonesia ex a m in e s w h e th e r there is b e h a v io r o f earnings m a n a g e m e n t in m a n u fa c tu re c o m p a n ie s listed in Ja k a rta stock ex ch a n g e in resp o n d in g the laws o f incom e taxes y e a r 1994 w h ic h started to be validated in 1995. T h e research finding does no t p ro v e th e e x is tin g o f c o m p a n y ’s b eh a v io r w h ich tries to d e c re a s e profit in 1994 with the pu rp o se to g et tax saving in related year. In the ju s tific a tio n , it is ex p lain ed that the c h a n g e o f 1994 laws is validated on S e p te m b e r 1994 or about 50 days befo re th o s e law s take effect at 1 J a n u a ry 1995. O n th e o th er hand, Hidayati and Z u la ik h a (200 3 ), Prasetio dan N u rsa n to (2 0 0 4 ) give em p irical p r o o f that the c h a n g e o f taxation laws particularly incom e tax y e a r 2 0 0 0 w hich m odifies tax b o u n d a ry fo r ta x p a y e r institution is not r e sp o n d e d by related ta x p a y e r to d o e a rn in g m a n a g e m e n t th ro u g h discretionary accrual artificial with the m o tiv atio n to m in im iz e c o m p a n y incom e tax charge.

Till no w , the p olicy o f earnings m a n a g e m e n t still b e c o m e s co n tro v ersy . M ost o f peo p le ask th e ethics behind b ehavior o f e arnings m a n a g e m e n t, ethical or not. In Indonesia, there is people w ho have notion that as long as that thing is not in co m p atib le with valid acc o u n ta n cy standard, thus earn in g s m a n a g e m e n t is legal than illegal. W h ile in United States, stock e x c h a n g e reg u la to r likely is m ore c o n c e rn e d with earn in g s m a n a g e m e n t problem . L inent m a n a g e rs and directo rs is o n e o f e x a m p le s case o f earn in g s m a n a g e m e n t w h o have to face

SE C c h a rg e (K etz, 1999). „

T h e accrual policy e m p lo y e d to m in im ize taxes needs to be further a n aly zed an d d e v e lo p e d since a c co u n tan cy standard w h ich apply is p ro d u c e d o f lengthily m a d e up o f interaction betw een society and increases o f business d e v e lo p m e n t. T h u s, it c o u ld be said th at standard is not a fixed price w h ich can not be e x c h a n g e d and d e v e lo p e d . Hence, research on e a rn in g m a n a g e m e n t c ould be one additional for standard and financial rules c o m p o s e r. T he resolution is to a d e q u a te ly integration betw een finance a c c o u n ta n cy standard and tax atio n rules w h ich restrict tax p a y e r to m ake up their fin an ce so the) could m in im iz e th eir tax obligation.

F. COST OF TAXPAYER OBEDIENCE

C o st o f ta x p a y e r o b e d ie n c e is cost w h ich ta x p a y e r sh o u ld pay as they c o n firm /o b e d ie n t on tax atio n laws (M arlow , 1995). This cost will be small if the taxation system is efficient. For taxpayer, efficiently taxation system will m aterialize if c o m p a n y im p lem en ts G ood C o rp o rate G o v e rn a n c e . Within taxation co n tex t ta x p a y e r, as one obed ien ce on G ood C o rp o ra te G o v e rn a n c e . 62 Complexity and Socialization o f Taxation Rule in Affecting the Taxpayer

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they has interest to o b e y the law and taxation rules thus it give them additional value for society /g o v ern an ce.

G o o d C o rp o ra te G o v e rn a n c e system will enforce for reach in g low tax c o m p lia n c e cost. G o o d corporate g o vernance objective is to create additional value for all stak eh o ld ers, o n e stakeholder is g o v e rn m e n t w h o should determ ine tax that should be fulfill.

R ev iew ed by ta x p a y e r the cost o f taxpayer c onform ity is perform ed by M o o d y (2 0 0 2 ) t h a t : -

In 2002 taxpayer in United State (individual a n d bodies) was estim ated sp en d 5,8 work hour to obey incom e taxation law o f state w hich call as obedience cost. This cost less

than 194 billion $ or equal to 20.4 cent f o r each $ incom e * tax which acceptable by state or 20.4% fr o m each income.

It c ould be stated that if tax obedience is one e le m e n t or C orporate G o v e rn a n c e practice, thus pe rfo rm a n c e and a c h iev em en t o f tax o b ed ie n c e level will d ep en d on c o m p a n y m anagerial perform ance.

O b e d ie n c e cost w as stim ulated by com plexity and socialization o f taxation rules. C lo tfelter (19 9 3 ) found that taxation rule c o m p lex ities increase ta x p a y e r op p o rtu n ity to avoid tax. T ax evasion causes both external and internal o b e d ie n c e cost. T h e internal ob ed ien ce cost is the cost th at is released by c o m p a n y related to a v o id a n c e or fraudulent o f tax. W hereas, the external o b ed ie n c e cost is penalty th at is burdened by the tax party (g o v e rn m e n t) to the taxpayer. To avoid tax, the ta x p a y e r usually ask for help from tax professional.

Its c o n se q u e n c e s m ay ca u se the internal obedience cost in the form o f c o m p e n sa tio n (b o n u s) to tax professional.

E m pirical study in respect to obedience cost conducted by Witte and W o o d b u rry (1985), Siahaan (20 0 5 ) finds that obedience cost negatively affects the tax professional o b ed ie n c e b ehavior in c o m p o sin g tax report. This empirical e v id e n c e p resents that the hig h er disobedience cost will cause the low'er tax professional o b e d ie n c e behavior. In contrary, the author arg u es that the lower taxation o b ed ie n c e cost will enco u rag e the taxpayer to fulfill his taxation responsibility.

In o b e d ie n c e practice, Landsittel (2000) suggests that there are three c h allen g es in facing a n ew age, they are (1) earning m a n a g e m e n t; (2) fraudulent financial reporting; and (3) internal control process. T he first challenge, earning m a n a g e m e n t related to m issta te m e n t o f a c c o u n tin g report in purpose to m an ip u la te the reported incom e. T he second challenge is related to fraudulent financial reporting. W h ile the third challenge is related to Fiscus w ho can not effectively m e a su re the quality o f internal control in order to be d eterm ined by out party.

T h e greater o b e d ie n c e cost will encourage the taxpayer to m inim ize tax profit in p urpose to m in im ize the n u m b er o f income tax liabilities. T he taxpayer

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o b e d ie n c e cost will turn low if the taxation rule is sim ply and the intensity o f ta x a tio n so cializatio n is equally and continually o rganized. T h e low obed ien ce cost will p e rsu a d e the ta x p a y e r to keep acco u n tin g c o rre sp o n d to the taxation rules a n d finally affect the ta x p a y e r ob ed ien ce in fulfilling his taxation responsibility.

G. THE TAXPAYER OBEDIENCE

B ased on K a m u s B e sa r B ahasa Indonesia, o b ed ie n c e refers to obey or c o m p ly to th e n o rm s o r rules (B a d u d u and Zain, 1995: 1013). N o v a k in K iry a n to (1 9 9 9 ) s u g g e sts that a clim ate o f tax p a y e r o b e d ie n c e are: (1) the ta x p a y e r rec o g n iz e s and tries to understand the taxation R eg u latio n s; (2) fills the tax form correctly; (3) calculates tax in right a m o u n t, and pay the tax in time. T h u s, o b e d ie n c e in taxation context is a loyalty to acc o m p lish the taxation rules w h ich m u s t be d o n e by the taxpayer.

T h e o b e d ie n c e intention is aiding this m a n a g e m e n t in a c c o m p lis h in g its resp o n sib ilities in o rd e r to obey the valid determ in atio n , rules and regulation that is d e c id e d by a u d ito r (S y m in g to n in Sadhani, 2004). T o fulfill obedience, the ta x p a y e r need s a c c o u n ta n t or tax professional help to c o m p o s e financial report by c o m p ly in g a c c o u n ta n c y standardization, laws and rules o f taxation that is certifiable fo r Fiscus to determ in e the fulfillm ent o f ta x p a y e r duty.

T h e em p iric a l research a b o u t the ta x p a y e r o b e d ie n c e in Indonesia c o n d u c te d by K iry a n to (1 9 9 9 ) o bserves the im pact o f internal control structure ap p licatio n to w a rd ta x p a y e r o b ed ie n c e in fulfilling his incom e tax. T h e finding p resents th at all e le m e n ts o f internal control structure that includes control, a c c o u n ta n c y system and control procedure have significant im pact to tax p a y e r o b e d ie n c e . T h is e v id e n c e indicates that the better structure o f internal control will su p p o rt the ta x p a y e r o b e d ie n c e in fulfilling his taxation responsibility.

O n e w a y to m e a s u re the ta x p a y e r o b e d ien ce is that the ta x p a y e r has insert S P T in tim e. T a b le 1 presents the tax p a y e r o b e d ie n c e in in serting annual notification letter (SPT ).

T a b le 1 presents the level o f taxpayer o b e d ien ce in inserting annual n o tification letter (S P T ) is still low. For e x am p le in 2003, the ta x p a y e r who insert annual S P T reach o n ly 35 % , capitation ta x p a y e r 34 % , and Pph c h o p p e r C h a p te r 21 38% .

. O n e criteria o f taxatipn success c orrespond to b u d g e te r function is the su ccess o f tax acquisition. T h e tax acquisition success is ratio o f ta x p a y e r o b e d ie n c e level in p a y in g tax c o m p a re d to basic regulation in the year. The h ig h e r ta x p a y e r o b e d ie n c e level, then the tax acquisition success w ill get higher too (S u h a rd ito and S u d ib y o , 1999).

T h e ta x p a y e r o b e d ie n c e is the purpose o f this w riting as stated in the en c lo su re o f ideas f r a m e w o rk Figure 1. A good c o m p lia n c e will be ach iev ed by the e x isten ce o f tax atio n rules and the equal and c o n tin u an t intensity o f taxation

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socialization. T h e low o b e d ie n c e cost will support the ta x p a y e r to a cco m p lish financial report c o rre sp o n d to the taxation rules, so that the ta x p a y e r ob ed ien ce will be efficiently achieved. T he obedience m e a su re m e n t is the co rrectn es s level o f a c c o u n tin g and calculating, the appropriateness o f deposit; fulfilling and inserting the ta x p a y e r notification letter (S P T ) correspond to taxation rules.

W ithin public policy context, especially taxation policy basically is the shape o f taxation a d m in istratio n cost and also the low er o b e d ie n c e cost (S adhani, 2004). T h e tax D irectorate General certainly will d ete rm in e this policy. In o rd e r that, w h a t Fiscus should to execute is in creasin g tax o b ed ie n c e that is follow ed by the efficiency and lower cost o f taxation adm inistration.

T h e re b y Fiscus should to co ncentrate hum an resources, effectiv en ess o f organization stru ctu re and technology to actualize the efficient taxation adm inistration, first-rate service for the tax p ay er that m ay give trust for society.

T hus the high tax o b e d ie n c e with low cost and efficient will be significantly achieved.

H. CONCLUSION

By the m ore c om plex*> f taxation rules, the taxpayer will m ore difficult to understand. T h e ta x p a y e r must order tax professional aid to reco g n ize and investigate the taxation rule. This aid, in acco u n tan cy context, will increase o b ed ie n c e cost in form o f c o m p e n sa tio n to the tax professional. T herefo re, the m ore c o m p le x o f taxation rules will increase the cost o f the ta x p a y e r o b ed ien ce in fulfilling his taxation duty. T he solution is that the tax atio n rule should not m ake am b ig u itie s for the ta x p a y e r or the taxation rule sh o u ld be m ad e simply, though it is difficult. H o w ev er, if it can be accom plished, the o b e d ie n c e cost can be decreased , so that it d o es not encourage the tax p ay er intention to m ake a cco u n tin g artificial in purp o sin g to avoid tax and finally the taxpayer o b ed ie n c e will increase.

T h e less socialization o f taxation rules by the tax D irectorate General (Fiscus), will m ak e the ta x p a y e r hard to recognize the new taxation rules, even can not be understood. T o socialize truth to w ard the ta x p a y e r to count, pay and report the back tax by his s e l f needs the role o f Fiscus in c o u n s e lin g o f taxation kno w led g e, service and control. Intensity o f taxation rule socialization about necessity o f p a y in g tax will press the cost o f taxpayer o b e d ie n c e and taxpayer intention to m ake a c c o u n tin g artificial in purposing tax evasion, so that it will increase ta x p a y e r obedience.

O b e d ie n c e cost is caused by co m p lex ity and socialization o f the taxation rules. O b e d ie n c e cost can be pressed if (1) the taxation system can be c o m p re h e n d e d and u n derstood easily; (2) the prevalent intensity o f the e x c h a n g e taxation rules socialization. The co m p le x taxation rule and the lack socialization will su p p o rt the ta x p a y e r to m ake a c c o u n tin g artificial (profit) with the intention to m in im ize tax. So, Fiscus have to a c c o m p lish investigation intensely and transparently . Investigation finding m ust be a n n o u n c e d to public.

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as profit artificial to m in im iz e tax m eans that ta x p a y e r a v o id s his duty to pay tax.

T h e g o o d o b e d ie n c e is an efficient co m p lia n c e ; it m e a n s th at the o b e d ie n c e cost m u st be low. T h e low cost o f o b e d ie n c e will be reached if the taxation rules can be u n d e rsto o d easily and it is su p p o rte d by equal and co n tin u a n t intensity o f tax atio n rule socialization.

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The International Journal of Accounting and Business Society

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