AN ANALYSIS OF THE RATIONALE BEHIND THE DECISION TO INCORPORATE NIK INTO NPWP RAISES QUESTIONS REGARDING ITS POTENTIAL IMPACT ON TAXPAYER COMPLIANCE

AN ANALYSIS OF THE RATIONALE BEHIND THE DECISION TO INCORPORATE NIK INTO NPWP RAISES QUESTIONS REGARDING ITS POTENTIAL IMPACT ON TAXPAYER COMPLIANCE

Tax revenue plays a pivotal role in supporting Indonesia’s state budget, accounting for approximately 80% of total revenue. This financial foundation is crucial for the nation’s development, as it drives progress towards an advanced Indonesia (Purwowidhu, 2022), thus The Directorate General of Taxes (DGT) as the tax authority in Indonesia has attempted to carry out tax reform, both tax administration reform  and tax policy reform, one of which is through the issuance  of Law Number 7 of 2021 or often referred to as the Law on Harmonization of Regulations Taxation. One of reform agendas on Constitution is further explained by the issuance of the Regulation of the Minister of Finance of the Republic of Indonesia Number 112/PMK.03/2022 concerning the matching or integration of data between the Population Identification Number and the Taxpayer Identification Number. According to the Director General of Taxes, Suryo Utomo, the merging of Population Identification Number with Taxpayer Identification Number into one single data will result in synchronization and validation of taxpayer data therefore it is in line with the government’s plan to implement the Single Identification Number (Ulya, 2021).

Based on data of The Organization for Economic Co-operation and Development (OECD), Indonesia’s current tax ratio is 10.1 percent of gross domestic product (GDP) and is still below the average for countries in the Asia Pacific region which is 19 percent (Fata, 2022). This integration is also a step taken by the Directorate General of Taxes to increase the tax ratio to Indonesia’s Gross Domestic Product by expanding the tax base and increasing the number of taxpayers. The senior Economist of Institute for Development of Economics and Finance ( INDEF ) assesses, the policy can create justice for taxpayers, making it easier for the Directorate General of Taxes and the Ministry of Finance to monitor transactions carried out by the public as taxpayers, and facilitating tax administration and services (Ramli, 2021). This is expected to minimize illegal tax avoidance or evasion.

Erich Kirchler, Erik Hoelzl, and Ingrid Wahl from the University of Vienna published an article in the Journal of Economy Psychology, Science Direct, on “Enforced versus Voluntary Tax Compliance”: The “Slippery Slope” Framework is a method for measuring tax compliance, defined as the degree to which individuals and businesses adhere to tax regulations, either voluntarily or involuntarily. The power of tax authorities refers to their ability to detect illegal tax evasion, while trust in tax authorities is defined as the belief that tax authorities are beneficial partners who maintain relationships with taxpayers. The “Slippery Slope” Framework is a psychological philosophy of tax compliance. It states that taxpayers’ voluntary and enforced tax compliance is influenced by the level of power and trust they have in the tax authorities. This influence creates four conditions, including, 1) When power and trust in authority are low, minimum compliance is the result. (2) When power of authority is high due to an increase in the probability of audits, detection, and heavy fines, maximum tax compliance is the result, but taxpayers feel “forced” to pay taxes. (3) When trust in authority is high due to the ease of tax administration and good interaction with the authorities, high tax compliance is the result, so that taxpayers feel “willing” to pay taxes. (4) When variations in power and trust moderate each other, tax compliance is optimized. In situations where authority power is minimal, variation in trust becomes a key factor. However, when authority power reaches its zenith, trust becomes secondary due to the authority’s ability to enforce strict compliance through fines and criminal penalties. Conversely, when trust is low, variation in authority power becomes a key concern. However, when trust is at its maximum, authority power becomes less relevant because taxpayers contribute their income without significant concern (Kirchler et al., 2007). The “Slippery Slope” Framework is a useful tool for identifying the reasons for implementing the policy of integrating NIK with NPWP. This framework suggests that the policy creates the perception among taxpayers that the tax authority (in this case, the Directorate General of Taxes) has maximum power to ensure fairness for taxpayers and monitor transactions conducted by the Directorate General of Taxes and the Ministry of Finance. This, in turn, minimizes illegal tax evasion or tax fraud through the imposition of fines or criminal penalties. This integration policy also maximizes the authority’s confidence in the ease of tax administration and services and serves as a partner in fostering good relations with taxpayers. Consequently, taxpayers are assured of their full compliance with the policy, irrespective of their voluntary or involuntary tax payment status.