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8/3/2019 Slide for Presentation.nov11

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THE EFFICIENCY CHANGESTHE EFFICIENCY CHANGES

IN INDONESIAS TAXIN INDONESIAS TAX

ADMINISTRATION AFTER THEADMINISTRATION AFTER THE

REFORM IN 2002REFORM IN 2002

Academic Supervisor : Prof. Shinji KanekoPresenter : Andi Mulya (M116908)

Graduate School for IDEC,

Hiroshima University

November 11th

, 20111


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Contents of the PresentationContents of the Presentation

y Introductory Background

y Research Questions and Objectives

y

Theoretical Frameworky Research Methodology

y Future Plan

y

References

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Three periods of tax reform in Indonesia :

1. 1983 (the change of system)

2. 1994 (the adjustment of tax regulation)

3. 2001 (the modernized administration as part ofbureaucracy reform)

The main objectives of tax reform are :

1. To improve the administration of tax system in terms ofefficiency and effectiveness such as tax ratio, tax

compliance rate, and tax officersproductivity.

2. To significantly increase tax revenue for the

governments budget.

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Introductory BackgroundIntroductory Background


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Tax administration reform consists of three crucialactivities: modernization of tax administration,policy reformation (the amendment of tax law),

and monitoring activities through intensificationand extensification program to create a nationalBank Data.

As a pilot project, DGT launched Large Tax

Offices (LTOs) and Large Tax Regional Offices(LTROs) in 2002 as a model for future tax offices,followed by gradual establishment of Small andMedium Tax Office (MTO and STO) throughoutIndonesia in the following years.


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The key features of Modernization :

y Organizational restructuring (from type-based into function-basedorganizational structure)

y The implementation of taxpayers segmentation (the formation of LTO, MTO,

and STO as One Stop Service for all taxes)

y The perfection of business process through the optimal use of IT, SOP

management, e-system implementation (e-filing, e-SPT, e-payment, and e-

registration)

y The simplification of internal-reporting system

y The introduction of Account Representatives (AR) assistance concept for

taxpayers

y The perfection of human resources management based on competence and

performance through competence mapping, a more objective and consistentassessment of employee through job grading

y The implementation of good governance (the setting of a comprehensive

ethical code that regulates organization code of conduct)

y Other features such as the implementation of computer-based integrated

taxation administration system and a new compensation system to attract the

officers. 5



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Problem FormulationProblem Formulation

Research questions :

y Did the performance of DGT (LTRO andother regional tax offices in Indonesia)

really satisfy the objectives of taxadministration reform in terms of itstechnical efficiency?

y In general, what were the determinantfactors that influence the DGTs performance since the implementation ofTax Administration Reform in 2002?

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The Significance of ThisThe Significance of This

ResearchResearch

Research Objectives and Relevant Issues

1. To analyze the extent of Tax Administration

Reform and to understand the impact of

reform on DGTs performance.

2. To propose several recommendations to

DGT to enrich the reform process in the

future (contribution of study forinstitution).

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Theoretical FrameworkTheoretical FrameworkData Envelopment Analysis (DEA)Data Envelopment Analysis (DEA)

The Basic Concepts :

y Nonparametric method for the estimation of production frontier.

y Like Stochastic Frontier Analysis (SFA), DEA identifies a frontier on

which the relative performance of all Decision Making Units (DMUs)

in the sample can be compared. Relative efficiency means that a DMU

with score=1 does not necessarily stop its performance. DEA identifieswhich DMUs that do not use its input efficiently or do not produce the

output effectively.

y Linear Programming (LP) methodology to measure efficiency of

DMUs with multiple/set of Input-Output (higher dimension of DEA).

y Usually used to measure public goods or non-trade goods (Mumu andSusilowati, 2004).

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The Basic Concepts :

y Valuable analytical research instrument and a practical decision

support tool for the management since it contains managerial aspects

in terms of stakeholders/analysts instantly recognize which DMUs that

need more attention based on efficiency rating/score so thatimprovement plan can be prepared.

y Performance evaluation, benchmarking (comparing each DMU with

only the best ones), and the identification of target for business process

improvements.

y Popular management and diagnostic tool, but not prescribe thestrategies to make inefficient units becoming efficient. So, it is not

always the right tool for a problem but might be appropriate in certain

cases.

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Fundamental Assumption in DEA

y If a DMU is able to produce Y units of output with X units of inputs,

then the other DMUs should also be able to do the same if they operate

efficiently (Same Production Schedule).

y Constant Return to Scale : DMUs are able to linearly scale the Inputs-Outputs without increasing or decreasing the efficiency, so that it

avoids the complication caused by different return to scale (Variable

Return to Scale). However, as a consequence, CRS tends to lower the

efficiency score and it is valid only for limited range.

y Input-Output is correctly identified (the first and the hardest step inorder to make a justified comparison among DMUs).

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TheThe AdvantagesAdvantages ofof DEADEA (powerful(powerful toolstools whenwhen usedused wisely)wisely)

y Accommodate/handle multiple Inputs-Outputs Model.

y No assumption of functional form relating inputs to

outputs : IO can have different units (no priori tradeoffbetween them).

y Directly compare against a peer or combination of peers.

y Sources of inefficiency can be analyzed and quantified for

each DMUs.y It is about technical efficiency, not economical, meaning

that it only considers the absolute value of IO variables,

not the measurement unit.

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The Disadvantages of DEAThe Disadvantages of DEAy An extreme Point Technique, so that measurement error can

cause problems.

y Good at estimating relative efficiency but not about theoretical

maximum or absolute efficiency.

y Nonparametric technique, so that it is difficult to conduct

statistical hypothesis test or test for specification (Berg, 2010).

y Standard formulation creates separate Linear Program for each

DMUs so intensive computation could become a big problem.y The result is sensitive to the inclusion/exclusion/selection of IO

variables (Berg, 2010).

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The Efficiency Score FormulaThe Efficiency Score Formula

The Model proposed byThe Model proposed by CharnesCharnes et.al (1978)et.al (1978)

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Research MethodologyResearch MethodologyData Envelopment Analysis (DEA)Data Envelopment Analysis (DEA)


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TheThe fractionalfractional programprogram cancan bebe convertedconverted toto aa linearlinear programprogram

asas followfollow (model(model developmentdevelopment byby CharnesCharnes etet..alal 19781978))

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The alternate formulationThe alternate formulation

FromFrom thethe solution,solution, wewe

cancan thenthen obtainobtain thethe goalgoal

inputinput (input(input--oriented)oriented)

and/orand/or thethe goalgoal outputoutput(output(output--oriented)oriented)..

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The Objects of ResearchThe Objects of Research****

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Research MethodologyResearch Methodology


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The Objects of ResearchThe Objects of Research


Data used in this study are secondary data and the

combination of cross-section data (different regional tax

offices all over Indonesia) and time series data (2006-2009).

They are primarily collected from relevant institutions, whichare Directorate General of Taxes (DGT) Ministry of Finance,

Directorate of Budget, and other reliable resources (if any).

Data that would be gathered are, to some extent, part of the

Key Performance Indicators (first introduced in 2006) in DGT.

*KPI is the objective measurement tool for assessing the

working process (effort) in almost all line of DGT

organization due to the implementation of tax administration

reform.


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The Possibility of Input VariablesThe Possibility of Input Variables(cover all the resources used in the production process) :

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State budget allocation for Operational Cost;

Total Salary for employees (staffs);The number of staff (as proposed by the classical

Cobb-Douglas production function);

Other InputVariables (if needed).


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The Possibility of OutputVariablesThe Possibility of OutputVariables :

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The ratio of extensification of individual taxpayers (%) : the number of registeredindividual taxpayers divided by the number of individual that should be registered as

taxpayers. This ratio shows the effort of tax office (administration) to conduct the

extensification program to add the number of registered individual taxpayers.

The Filing of Annual Income Tax Return (%) for both individual and

corporate taxpayers : Annual Income Tax Return Filed divided by the amount of

registered taxpayers (either individual or corporate). This ratio exhibits not only thecompliance level of taxpayers in filing their tax return but also the effort of tax office

(administration) to disseminate (educate) the taxpayers to comply to their tax obligation.

Tax Audit Efficiency : the amount of completed tax audit divided by the number of taxauditors. This shows the average tax audits conducted by each tax auditor.

The Objection Case Efficiency (in months) : the length of objection case (request)

could be completed. Time (months) needed to accomplish the objection cases divided by theobjection decision issued. The shorter the time needed to finish the objection cases, the more

efficient the tax office (administration).

The Efficiency of Tax Arrears Collections (%) : the Rupiah value of tax arrearscollected (Income Tax and VAT) divided by the beginning balance of tax arrears in the

beginning of the period. The bigger the ratio, the more efficient the tax office

(administration).


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The Possibility of OutputVariablesThe Possibility of OutputVariables :

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The efficiency of the completion of tax refund (in months) for both Income Tax

(PPh) and VAT (PPN) : This ratio shows the average time needed to accomplish the taxrefund request from taxpayers, obtaining from the time needed to accomplish the tax refund

request from taxpayers divided by the amount of the Notice of Tax Assessment (SKP) issued.

The faster the completion processes of tax refund, the more efficient the tax office

(administration).

Total Net Revenue Collected;

Ratio of Budget Cost to Collections;

Tax Collection Activities for both Individual and Corporate Taxpayers. These

activities are the issuance of warning letter (Surat Teguran), the issuance of coerces warrant(Surat Paksa), the issuance of confiscation/seizure warrant (Surat Perintah Melaksanakan

Penyitaan), and the auction (Pelaksanaan Lelang);

Total New Registrants (New Registered Taxpayers);

Other Output Variables (if possible).


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ReferencesReferencesy Banker, Charnes and Cooper (September, 1984), Some Models for Estimating Technical and Scale Efficiencies in

Data Envelopment Analysis, ManagementScience,Vol. 30 No. 9

y Cooper, William W, Data Envelopment Analysis: History, Models, and Interpretations

y Directorate of Compliance and Revenue Potential, Directorate General of Taxes, Ministry of Finance, Buku Saku

Pajak dalam AngkaTahun 2001-2009 (Jakarta:2010)

y DirectorateGeneral Tax, Annual Report of Large Regional Tax Office 2003-2008 (http://kanwilpajakwpbesar.go.id)

y DirectorateGeneral Tax, Laporan Akhir Tahun Modernisasi 2006(Jakarta:2006)

y DirectorateGeneral Tax, ReformasiPerpajakan Jilid Dua (Jakarta:PressConference, June 22 th 2009)

y International MonetaryFund, Tax AdministrationReform: Status and Future Directions (Jakarta:August, 2008)

y Render, Barry, et al. Quantitative Analysis for Management, 10th ed. New Jersey: Pearson International Edition,2009.

y Sentana, I Made Agus Hari, June 2006, Tax Administration Reform in Indonesia: An Analysis of the Performance of

Large Taxpayer Offices , Thesis of Asian Public Policy Program, Graduate School of International Corporate Strategy,

Hitotsubashi University

y Siswadi, Erwinta, and R. Nugroho Purwantoro, August 2006, Aplikasi Metode DEA dengan Klasifikasi DMU untuk

Pengukuran Kinerja Operasional Kantor Cabang Bank, ManajemenUsahawan Indonesia, No. 08,Year XXXV, 33-38

y Talluri, Srinivas, Data Envelopment Analysis: Models and Extensions, Silberman College of Business Administration,

Fairleigh Dickinson University

y The Decree of Ministry of Finance (Keputusan Menteri Keuangan) No. 94/KMK.01/1994 on March, 29th 1994 as

lastly amended by The Regulation of Ministry of Finance (Peraturan Menteri Keuangan) No. 62/PMK.01/2009 on

April, 1st 2009 about The Organization and Working Mechanism of VerticalInstitutionsof DGT.

y Wulandari, Anastasia Rahayu Tri, 2009, Efisiensi Relatif Kinerja K PP di Kanwil DJP Jakarta Khusus Pasca

Modernisasi AdministrasiPerpajakandengan Menggunakan DEA, Thesis of MPKP, Universityof Indonesia

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Future PlanFuture Plan

y More on literature reviews, especially the ones

(journals, papers) directly related to DEA and tax

administrations;

y In-depth study on the theoretical framework and

research methodology;

y Data collection and analysis;

y Real application of the model on related software

and try to interpret the results.

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Thank YouThank You

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