Directorate General Of Taxes Strategic Map Accounting Essay


For most countries, tax revenue is highly important for development. For Indonesia case, nowadays tax revenue has a big portion in domestic government revenue. Since Ministry of Finance performed bureaucratic reform, especially in Directorate General of Taxes (DGT) in 2002, tax revenue had increased and it was expected to increase every year. According to the data from DGT, tax revenue target in 2011 is IDR 878,7 trillion (Suara If we compare with the target in 2006 which is only IDR 409.2 trillion, the average growth per year is 17.4% (Infobanknews). However, this growth is far from enough to our budget. We can see from our State Budget (APBN), our government is running a budget deficit. To fulfill this budget, they have to make some loans from other country. Besides that, the insufficiency of tax revenue is reflected from tax ratio. Our tax ratio to GDP was only 11..3 % in 2010 based on Revised State Budget (APBN-P). In 2011, according to Ministry of Finance of Indonesia, our tax ratio target was expected at level of 12.3% ( In that website also shows that in 2011 the revenue budget was IDR 879 trillion and tax revenue was 878 trillion which means 99% of total revenue. Some scholars explain that our tax ratio is lower than other countries' tax ratio. If we compare Indonesia with ASEAN countries, such as Malaysia (14.3%) and Thailand (16%) for year 2010, it is clear that our 10.9% tax ratio is below those countries' tax ratio (The World Bank).

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As a result of bureaucratic reform performed by The Ministry of Finance, The Directorate General of Taxes have set up the agendas, namely creating Large Tax Office (LTO) in 2002, reforming tax law, developing a new structure based on its function, improving employee's welfare, and also developing a new technology (PINTAR) which is expected to be launched in 2014. All these agendas of bureaucratic reform have one purpose that is to increase tax revenue through increasing tax compliance.

Based on Directorate General of Taxes Regulation Number KEP-76/PJ/2009 concerning The Revision of KEP-111/PJ/2008 concerning Strategic Plan Directorate General of Taxes for year 2008-2012, it is mentioned in the appendix that DGT has strategic plans to implement DGT's vision, missions, objectives, values, strategies, and programs, for the period of 2008 until 2012. In these strategic plans, tax compliance is part of the strategies (see Fig.1-1).

Figure 1-1 Directorate General of Taxes Strategic Map

Source :Indonesia; Ministry of Finance; Directorate General of Taxes; Directorate General of Taxes Strategic Plan 2008-2012 ; (Jakarta: Directorate General of Taxes, 2008). L-4. Print.

From DGT's internal data, tax compliance ratio in Indonesia for the year 2002 until 2008 is around 30% - 50%. For the year 2002, among 2.3 million taxpayers who have to submit tax report, only 0.7 million taxpayers have reported their tax report. Thus tax compliance ratio is 33.45%. However, in the year 2009, there is a significant increase of 54.15% for tax compliance. From 9.9 million taxpayers, it is about 5.4 million taxpayers have submitted their tax reports (see table 1-1 and Fig. 1-2). Since tax reform was started in 2002, tax compliance has increased gradually.

Table 1-1 Tax Compliance Ratio for Income Tax Report

Source : Indonesia; Ministry of Finance; Directorate General of Taxes; Taxes Information Technology Directorate and Extensification and Assessment Directorate; 2011.

Compared with the tax compliance in European countries and United States, Indonesia has a very low rate in tax compliance (see table 1-2). United States takes the top position at 84.00% and Italy takes the lowest at 62.49% for the year 2007 (Joyner, 2009). Therefore, increasing tax compliance is one of the DGT's objectives in order to optimize tax revenue.

Figure 1-2 Tax Compliance Ratio Graph

Source : Indonesia; Ministry of Finance; Directorate General of Taxes; Taxes Information Technology Directorate and Extensification and Assessment Directorate; 2011.

Table 1-2 Tax Compliance Ratio European, US, and Indonesia year 2007


Tax Compliance Rates

United States

84.00 %

United Kingdom

77.97 %


77.70 %


75.38 %


74.80 %


70.15 %


72.84 %


68.09 %


67.72 %


62.49 %


30.21 %

Source : James Joyner, US and European Tax Rates and Compliance. Atlantic Council, 16 Jul. 2009; Web; 7 Dec. 2012.

I.1. State of Knowledge

Tax compliance is closely related to tax revenue. When tax compliance increases, it is expected that tax revenue also increases. Tax compliance is influenced by two determinant factors; they are external and internal factors. External factors (demographic factors) are the number of population and characteristics of people based on gender. While the internal factors or the institutional factors are the number of employment, tax audits, tax rates, taxpayers and districts. All of these factors are related to the work load, tax coverage and supervision to taxpayers.

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The efficiency and the effectiveness of tax authority which are the institutional factors also functions as factors to enhance tax compliance. Work load factor, which related to the number of employment, coverage area, and ratio between taxpayers to tax officers, is one way to measure the effectiveness of tax authorities. Workload might influence the performance of each individual in the organization. Shah et al. (2011) argued in their research "Many variables like intellectual and physical abilities of the employees, . . . , workload, and structure of organizations, influence the performance of employees" (256) . They also stated that "workload refers to intensity of job assignments" (256). Moreover, they mentioned that workload has advantages and disadvantages to the performance. When individual can overcome the stress level, achieve its potential, it can be positive effect. On the other hand, when employee might feel the workload is too excessive, unable to handle stress and to achieve its potential, it might be negative effect. The individual performance is an attribute to the organization performance. If the performance of individual is good, the organization performance is also good, vice versa.

The addition of demographic factors to the model will enrich the literature of tax compliance. Indeed, it is not only internal factors can influence tax compliance, but also external factors. Fisher et al. (1992) discussed some demographic factors, for example gender, which might influence tax compliance (cited in Alabede, Ariffin, and Idris, 2011). They stated that tax system structure and demographic factors is combined in order to understand the behavior of tax compliance. In other research, Torgler and Valev (2010) claimed in his working paper that women tend to comply more compared with man . From previous studies, they stated that in relation with tax compliance, the trend of compliance is higher for woman.

Another factor is organization inertia. Organization inertia is the stability and consistency of the organization performance over years. This factor is expected to influence the consistency of tax compliance. When taxpayers have already complied in the preceding years, it is expected that they will also comply in the following years. Furthermore, it is strongly expected that they increase tax compliance in the years thereafter. In journal by Ryu, Wenger, and Wilkins (2012) they investigated how previous bureaucratic performance can influence the performance organization in the future.

I.2. Purpose of the Study

The main purpose of this research is to study the factors in determinant of tax compliance especially in DKI Jakarta Province in Indonesia. As mentioned above, the factors are from institutional factors, demographic factors, and previous compliance. Thus, this thesis focuses on those factors, which one has positive and negative effect. Other purpose is trying to explain which one is significantly influence tax compliance. In order to achieve these purposes, this thesis will be structurally composed as three different groups, institutional factor, demographic factors and previous compliance.

In institutional factors, this study will explained the influence of number of employment over number of taxpayers (workload ratio) on tax compliance. Workload ratio is related to the job assignments (Shah et al., 2011). Workload ratio is the number of tax officers divided by the number of taxpayers. If the workload is higher, then the job assignment is higher too. In this case, it is because of decreasing number of employments or the increasing number of taxpayers. When this happens, each tax officer cannot optimize in supervising and serving taxpayers. Furthermore tax officer cannot detect taxpayers who do not comply. Thus, with higher work load, each tax officer cannot serve, analyze, and supervise taxpayers precisely and intensively. In other words, the hypothesis is higher workload might decrease tax compliance.

In demographic factors, this research will discuss the influence of gender on tax compliance. Fisher et al. (1992) stated that gender might affect tax compliance (cited in Alabede, Ariffin, and Idris, 2011). Thus the hypothesis is woman are more comply with tax than man. Furthermore, woman has higher willingness to comply than man (Torgler and Valev, 2010). From the journal by Torgler and Valev , they explained several prior theories to support the hypothesis, such as self-control, cognitive, emotional, behavioral, biological, opportunities, and motivation to crime to understand the differences in gender toward crime. In those researches, incompliance is interpreted similar to the crime. Of course, there are many contradictive conclusions among those papers. Therefore, the other purpose of this research is applying those theories in case of DKI Jakarta Province.

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The hypotheses for organization inertia is the previous tax compliance influence present tax compliance. When taxpayers have already submitted their tax report and paid their taxes truthfully, they might also submitted and paid for years later. Moreover, they are likely to be expected influence other taxpayers to be more comply.

I.3 Significance of the study

The differences of this study compared with prior study are explained below. As a whole, this study combines many factors; first is institutional factors which are considered as internal factors, second is demographic factors or external factors as independent variable, and third is organization inertia. It is necessary but not sufficient to use many factors to explain tax compliance.

There are only few studies in Indonesia, especially using DKI Jakarta Province data, which try to explain from many points of view to disclose the relations of those factors on tax compliance. Some prior researches only explain the effectiveness and the efficiency of tax authority in relation with tax compliance. Indeed, there is no study investigating the impact of workload (tax officer numbers devided by taxpayer numbers) on tax compliance in Indonesia. This is very significant in order to find the answers of those questions.

Demographic factors have been studied earlier. However, some of those researches only used small sample such as using western European countries (the effect of gender on tax compliance). Furthermore, there is no similar study using that data set in Indonesia.

For organization inertia, there is no study using the performance of bureaucracy especially in Indonesia case. However, there are some researches using prior performance can influence performance of bureaucratic and predict the performance in the following year. For example, the journal conducted by Ryu, Wenger, and Wilkins (2012) used prior performance of bureaucratic error in United States to predict error in the following years.