Regulating Indonesia's high wealth individual taxpayers: ideas for policy transfer

Abstract

A growing challenge for tax authorities worldwide is managing the tax compliance of high wealth individuals (HWIs). The OECD promotes comparative policy learning as an approach to addressing such shared problems. It also gives its imprimatur to ‘best practice’ for OECD countries wishing to strengthen their regulatory frameworks. Among OECD recommendations are for tax administrations to invest in specialised HWI initiatives. While such initiatives have gained popularity, this thesis presents evidence to suggest that the divergence of tax regulatory practices and policies can reduce the transferability of such policy lessons and practices. Indonesia, despite its developing status and the relative immaturity of its tax administration, adopted a HWI initiative in 2009. This thesis investigates the process of this transfer and, in particular, its implementation in the Directorate General of Taxation (DGT). The policy transfer framework of Dolowitz and Marsh (1996; 2000) was used as the theoretical starting point for the thesis. The notions of ‘uninformed’, ‘incomplete’, and ‘insufficient’ transfer provided by the framework, however, are terms too broad for understanding processes that may lead to failure. A process approach, as advocated by Christensen (2013), Eccleston (2006), Radaelli (2000) and Sharman (2010) was needed that could take account of multiple, competing processes, some of which assisted the HWI office, others which undermined it. Braithwaite and Drahos’ (2000) concepts of actors, principles, mechanisms, and webs of influence were applied to disentangle the dynamics that occurred at the implementation stage of the transferred policy. Evidence of implementation processes and consequences was collected through an empirical case study of HWI taxation regulatory arrangements in Indonesia and Australia. Australia was the single most important advisor to DGT on establishing a HWI unit. In all, 54 semi-structured interviews were conducted with Indonesian and Australian tax officials and other relevant actors between September 2011 and April 2013. Archival material and public documents were also analysed. Policy transfer occurred with a political imperative to ‘do something’ to modernise the tax administration. The policy was adopted voluntarily by Indonesia, with support sought and received from the international epistemic community. Within Indonesia and DGT, however, there was no opportunity for negotiating the time frame for the HWI initiative. There was little time for deep learning. In the early stages, DGT invested in training and dialogue to build a shared commitment among staff and stakeholders around the functions of the HWI unit. After three months, the DGT’s direction on how it managed compliance of the HWI taxpayers changed dramatically. The old DGT ethos of meeting revenue targets was imposed on the HWI unit. During this second period of the HWI unit’s operations, webs of dialogue took second place to webs of control. Coercion undermined the process of building commitment to the new HWI unit. Blocked communication channels prevented cooperation. Resistance emerged – among stakeholders, to the idea of a HWI unit, and to a return to old tax collection practices by those who favoured reform. For the moment, the contest of principles for Indonesia’s tax system, and control of mechanisms to realise these principles, has led to a crushing of HWI tax reform.