Transcript Comparative Study of Indonesia, South Africa and Brazil

Cross-Country Research on Tax Policy and Inequality:
Comparative Study of Indonesia, South Africa and Brazil
INTERNATIONAL NGO FORUM ON INDONESIAN DEVELOPMENT (INFID)
2015
Indonesia, South Africa, and Brazil are prominent developing countries in the
world.
• Indonesia: has higher and more stable growth compared with Asia-pacific average.
• Afrika Selatan: GDP per capita far outperformed Sub-Saharan Africa average.
• Brazil: 7th biggest economy in the world (2013)
GDP Growth, Indonesia vs East Asia and Pacific
8
6
4
2
0
GDP Per Capita, ZA vs Sub Saharan Africa
10000
5000
1961
1965
1969
1973
1977
1981
1985
1989
1993
1997
2001
2005
2009
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0
Indonesia
South Africa
East Asia & Pacific (all income levels)
Sub-Saharan Africa (all income levels)
Source: data.worldbank.org
Brazil: 2013’s 7th Largest Economy (By GDP)
However, these countries have worrying inequality problems …
Measured with “Gini Ratio”. Indonesia: Gini Ratio slowly increasing from around 30% to around 40%
Indonesia
South Africa
OECD
Brazil
70
70
70
60
60
50
50
40
40
40
30
30
30
30
20
20
20
20
10
10
10
10
70
60
60
50
50
40
0
0
2002 2005 2007 2008 2009 2010 2011 2012 2013
2000
2005
2007
0
2001 2002 2003 2004 2005 2006 2007 2008 2009
0
2000 2005 2007 2008 2009 2010 2011
Taxation plays vital role to fight inequality:
1. As main source of government budget, to fund various social spending
2. As main income redistribution tool.
Health and education
are important spending
to fight economic
inequality.
For 2000-2010,
education spending (%of
GDP) of Indonesia did
not make any progress.
Tax revenue performance of these countries are still not satisfying compared to
developed countries (OECD Members).
Do the riches pay proper tax?
Tax Ratio Indonesia, South Africa, Brazil, and OECD countries
Indonesia
South Africa
Brazil
OECD members
40
35
30
25
20
15
10
5
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Tax Revenue to GDP Ratio (1972-2012)
Source: Prastowo, 2014
Rasio Penerimaan Pajak terhadap PDB
(%)
14.0
13.29554322
12.3
12.0
10.75930587
9.73566151
10.0
8.0
11
8.340408845
7.328900998
6.70413172
6.0
The increase of tax Ratio 2004 ke 2013 has been only 0.2%
5.252656172
4.0
2.0
0.0
1972
74
76
78
80
82
84
86
88
90
92
94
96
98
2000
02
04
06
08
10
12
Income tax is the most
progressive kind of tax
because it considers
taxpayers’ ability to pay.
In contrast, the
consumption tax is
regressive because it
does not consider
taxpayers’ ability to pay.
Most of developed
countries rely on
revenue from income
tax.
OECD Countries revenue composition, 2010
The composition of tax revenue Indonesia,
South Africa, and Brazil in 2010
Brazil relies heavily on
consumption taxes, it
constitutes of more
than 53%.
Income tax revenue is
dominant in South
Africa and Indonesia
Although the income tax revenue is more dominant than consumption tax, the
revenue of income tax mostly obtained from employees through PAYE system.
It shows us that tax paid by the middle class (employees), not by self-employed individuals.
Income tax composition of Indonesia, South Africa, and Brazil
Indonesia
Individual
24%
PAYE
23%
Self employed 1%
Corporate
33%
Others
43%
Total
100%
South Africa
62%
60%
2%
36%
2%
100%
Brazil
14%
8%
6%
46%
41%
100%
Personal income tax system in Indonesia and South Africa do not show
progressivity. It is proved by relatively low marginal rate and relatively high income
level that subject to the highest rate.
Marginal tax rate in Indonesia, South Africa, Brazil, and
United Kingdom, 2014.
50%
45%
40%
Tax Rate
35%
30%
25%
20%
15%
10%
5%
0%
0
2
4
South Africa
6
8
Annual Income divided by GDP Per capita
Indonesia
Brazil
United Kingdom
10
12
14
Gender Inequality
• Indonesia treat family as single taxation unit. As a result, married woman that have
their own tax ID potentially pay more tax due to the progression of income tax
rates.
• In Indonesia, a wife with income from one employer is not combined but income
from self-employed activities need to be combined with the husband's income.
• VAT in South Africa even burdens men more heavily than women by a margin of
about 8%. Each ZAR 1 spent, families with male head 9:23 cent pay VAT while
families with female head paying 8:13 cents.
• One of the contributing factors is the consumption behavior. Indirect taxes are
higher on alcohol and tobacco as well as taxes on fuel burdening more to male
family.
• Indonesia does not provide an exception of non-taxable goods in the gender
perspective.
High corporate income tax rates could potentially lead to capital flight to countries
with low tax
Tarif Corporate Income Tax 2006-2014 (%)
On the other side,
developing countries may
give too many tax incentives
which is not effective.
Indonesia
Afrika Selatan
OECD Average
Global Average
Brazil
38
36
34
32
30
28
26
24
22
2006 2007 2008 2009 2010 2011 2012 2013 2014
Tax Revenue Loss Estimates Some Developing Countries (G20) Originating from
Bilateral Trade mispricing by the European Union and the United States
(millions GBP)
Indonesia, South Africa, and
Brazil are always included in top
list of countries suffered the
greatest losses due to tax
evasion.
Tax base deduction by shifting of
profit to other countries is well
known as Base Erosion Profit
Shifting (BEPS).
Financial Asset Stored in Tax Haven
Rank
Country
1
2
3
4
5
6
7
8
9
10
China
Rusia
Korea
Brazil
Kuwait
Meksiko
Venezuela
Argentina
Indonesia
Arab Saudi
Financial Asset
in Tax Haven
(billion USD)
1.189
798
779
529
496
417
406
399
331
308
Top ten of illicit financial flows 2003-2013
(billion USD)
Rank
1
2
3
4
5
6
7
8
9
10
Negara
China
Russian Federation
Mexico
India
Malaysia
Brazil
Indonesia
Thailand
Nigeria
South Africa
Total
1.252
974
514
440
395
217
188
172
157
122
Finding from UNCTAD
• Since 2008, for every $1 dollar
developing countries gain (through
FDI, remittances, aid etc), they lose
around $2 dollars (especially in illicit
financial flows and debt repayments).
• Extrapolating to all (nonhaven) developing countries
generates a range of revenue loss
estimates from $70 billion to $120
billion. Figure 20 shows the central
estimate of $100 billion in revenue
losses: towards half of the actual tax
paid.
Tax Evasion in Indonesia
25.00%
1. PERTANIAN, PETERNAKAN,
KEHUTANAN, DAN PERIKANAN
20.00%
2. PERTAMBANGAN DAN
PENGGALIAN
3. INDUSTRI PENGOLAHAN
15.00%
4. LISTRIK, GAS, DAN AIR BERSIH
5. KONSTRUKSI
10.00%
6. PERDAGANGAN, HOTEL DAN
RESTORAN
7. PENGANGKUTAN DAN
KOMUNIKASI
5.00%
8. KEUANGAN, REAL ESTAT &
JASA PERSH.
9. JASA - JASA
0.00%
Tax Ratio
Tax Ratio
Tax Ratio
Tax Ratio
Tax Ratio
2007
2008
2009
2010
2011
• Transfer pricing mostly do by
companies particularly coal,palm
oil, cocoa and other
commodities sector (Reuters,
24th February 2015)
• Tax haven by rich person and
also company that register their
company in countries with low
rate of tax
Efforts Done by GOI
• Entering tax treaties with other countries  65 countries
• Providing tax provisions regarding transfer pricing policies, antishopping rules, thin capitalization and controlled foreign corporations
• Increasing and intensifiying tax audits on certain taxpayers with crossborder transactions
• Issued regulation on tax audit procedures related to exchange of
information based on a tax treaty
• Tax Amnesty
OECD BEPS Action Plan
• To combat BEPS, OECD released BEPS Action Plan in July 2013 to address the perceived
flaws in the international tax rules.
• The Action Plan, negotiated and Drafted with the active participation of its member
states, contains 15 separate action points.
• The Plan is squarely focused on addressing issues in a coordinated, comprehensive
manner, and was endorsed by the G20.
Issues raised in BEPS Action Plan that are strongly correlated with developing countries are:
Digital economy
Digital economy makes developing
countries facing more and more
difficult way to levy tax. Besides
the difficulty of administration, in
the context of cross-border trade,
there is also the issue of how the
taxing right be defined
Transfer Pricing
Transfer pricing is often associated with
the company's actions in the set price so
that the transfer tax payable in a country
can be transferred to other countries.
Among the countries of the G-20, Brazil,
Indonesia, and South Africa are ranked
4,5, and 6 respectively in term of the
amount of tax revenue lost due to transfer
pricing.
Transparency of Information.
A key aspect of multilateral
cooperation is exchange of
information.
In 2014, OECD created of one common
global standard for the automatic
exchange of financial account
information, which has been made
available for all jurisdictions to use.
Beyond BEPS Action Plan
More involvement of developing countries in
the formulation of a global initiative
• Involvement of developing countries is
limited only on the implementation of the
Action Plan rather than on all phase
including the formulation.
• For some measures, in the Action Plan the
OECD is unlikely to propose solutions that
would be strong enough or appropriate for
developing countries.
• Regarding information transparancy, the
lack of involvement of developing
countries in policy formulation also occurs
in the preparation of the Common
Reporting System. Developing countries
were not involved or consulted in the
design stage.
Introduction of Global Formulary Apportionment
The concept of international taxation currently
very detrimental to a developing country with a
vast market as the three countries that observed
for income generated in their countries through
trading activities but more income enjoyed by the
country in which a company operates sellers.
In the context of the division of taxation right, the
method needs to be considered is assessment of
multinational corporations on a unitary basis using
Global formulary apportionment (GFA).
GFA requires coordination for the state to support
a country-by-country reporting so that the
calculation of the proportion of profit can be
calculated correctly.
Conclusion
1. Indonesia and South Africa have relatively low revenue performance
2. Individual tax revenue in Indonesia are significantly raised by tax revenue of employees, compared to very
little contribution from self-employed individual. In terms of individual income taxation, this rate is
relatively low compared to developed countries
3. The taxation policy has not been reflected gender justice.
4. One cause of the low level of tax revenue is massive amount of tax evasion and tax avoidance. This is done
by using artificial international taxation scheme, equipped with the use of tax havens jurisdiction.
5. One way to combat international tax evasion practices do is to implement OECD BEPS Action Plan, but BEPS
Action Plan is not enough for developing countries.
Recommendations
1.
Indonesia need to maximize tax revenue potential so it can be used to increase public spending that
needed for inequality reduction by increasing tax compliance of self-employed rather than rely on PAYE
system, and reviewing their idividual income tax rates to be more progressive
2.
Indonesia needs to change the family unit tax into individual tax, so women are not harmed by higher
marginal tax rates.
3.
Beyond BEPS Action Plans, developing countries need to take steps, including more involvement in
discussion and formulation of BEPS Action Plans, improving regional cooperation, reviewing the
application of tax treaty and tax treaty abuse, proposing application of unitary taxation regime,
proposing formulary apportionment with country-by-country reporting as an alternative of the arm's
length principle, and pressing developed countries to provide assistant in the implementation of
information exchange as well as enhancing transparency of beneficial owners in international tax
scheme so the artificial profit shifting can be reduced.
4.
Bringing beneficial ownership issue into political discourse to get more attention and real cooperation
between developed countries and developing countries by standardize the automatic exchange of
information and re-characterization of tax planning structures that do not have economic substance
5.
Discourse tax into public issue and become political issue
Thank You!
[email protected]