Tax Amnesty Policy (The Framework Perspective of Sunset
Policy Implementation Based on the Act no. 28 of 2007)
Bintoro Wardiyanto 1
Department of State Administration, Faculty of S ocial and Political Sciences, Airlangga
University, Surabaya
ABSTRACT
In many countries thinking about tax amnesty or sunset policy is currently in mainstream.
Trend of the cross-national experience shows that the implementation of a tax amnesty or sunset
policy is successful in short term, but the long term is debatable in whic h the relationship with tax
compliance. Tax compliance is a complex behavioral issue. To fully understand differences in
compliance behavior across cultures one needs to understand differences in tax administration
and citizen attitudes toward governments . To measure the long run effects of an amnesty on
compliance, to analyze the relationship between tax compliance and subjects’ possibility to vote
for or against an amnesty. Tax compliance only increases after voting, when people get the
opportunity to discuss prior to ballots. Thus, voting with discussion induces a kind of civic duty,
as taxpayers become aware of the importance to contribute to the provision of public goods.
Beside that, tax compliance levels can be explained by differences in the fairnes s of tax
administration, in the perceived fiscal exchange, and in the overall attitude towards the respective
governments. If overall can be understood and hold of individual or institutional actor in policy
making, we predict that possibilities have succe ssful implementation tax amnesty or sunset policy
base on UU No 28/2007 in period December 31, 2008.
Key words: tax amnesty, sunset policy, tax compliance, public good, implementation .
It is very interesting to discuss the issuance of act no. 28 year 2007, especially related to
article 37 A which tends to construct the existence of tax amnesty (sunset policy). Even though
the term tax amnesty (sunset policy) cannot be explicitly found in the act and its explanation, it
seems that the state through its institution which has authority to regulate and manage tax (the
directorate general of tax) is attempting to subjectively construct, strengthen and convince that the
meaning of article 37 A is regarded and understood as tax amnesty (sunset policy). Althou gh it is
still debatable, the core problem of sunset policy is not only on the term of the law norm
construction, but there is more substantive problem in the social and political construction of the
policy implementation.
Generally, we believe in the goo d willing of the government, that the construction of
sunset policy in the act no 28/2007 is intended to collect and regenerate the state’s revenue which
so far is not touched by the tax officers because they are in the undercover areas, by giving
incentive in terms of tax amnesty to certain tax payers. According to Darmin Nasution, the
number of tax payers is not yet maximal so that sunset policy program needs to be applied.
Sunset policy is a program of sanction amnesty for the tax payers who report the ir income
honestly before 31 December 2008 and pay the rest of the tax before 21 March 2009. If the tax
payers make use of this program, then the directorate general of tax will free them from the
sanction of examination and fine on the unpaid tax. There a re two kinds of amnesty which are
given. The first is the reduction or removal of administrative sanction like interest of Yearly SPT
correction for tax year before 2007. This kind of amnesty is given to all tax payers, either
1
Correspondence: B. Wardiyanto. Department of State Administration, Faculty of Social and Political
Sciences, Airlangga University. Jl. Airlangga 4-6 Surabaya 60286, Indonesia. Phone (031) 8057642,
Hp.081553136990. E-mail: bintorowardiyanto@yahoo.com or bwardiyanto_fisip@unair.ac.id.
Wardiyanto: Tax Amnesty Policy: The Framework Perspective of Sunset Policy Implementation
organization or individual, that correct their Yearly SPT (PPh organization, PPh personal
Individual, and PPh pasal 21) for tax years before 2007 and the result of the correction causes the
number of tax which must be paid increases. The second is the removal of administrative sancti on
of the tax which is unpaid or less paid for tax year before NPWP for the tax payers Personal
Individual who register themselves voluntarily to have NPWP is obtained.
Considered wisely, it turns out that Indonesian people are about 225 millions and of
course mostly of that number are potential tax payers. However, it is ironical that in 2004 the
number of tax payer is only 3.670.060 with the following details: 2.622.184 is individual tax
payers and 1.047.876 organizational tax payers. Meanwhile, in 2008 , it is recorded that there are
5.95 millions of tax payers who have paid their tax in the minor number, and there are 50.500
active tax payers who become the state's income mainstay from tax sector, of which 50.000 of
them are serviced by 250 office units of modern tax and 500 are serviced by the Big Tax Service
and LTO (Large Tax Payer Officer) (Darmin Nasution, Kompas 15 July 2008).
The phenomenon of small acceptance of the state from tax aspect which happens in the
developing countries, including Indon esia, seems not only encouraged by the low ratio of the
number of tax payer and the number of the people, but also by other dominant factor like the high
number of tax avoidance practices, tax evasion, tax morality, tax compliance, administration
complexity, institutional trust, and capacity to implement. Particularly, in the discussion of
sunset policy implementation, there are several interesting questions which can be asked as the
entry point. Among them are what philosophical arguments which inspire? What triggering
factors which enable sunset policy to succeed or fail?
Theoretical Philosophical Argument
In historical perspective, the existence of tax amnesty (sunset policy) as the choice of
state's policy have long been recognized and practiced in many countries either developed or
developing. Tax amnesty is the policy of the government in the field of tax which is constructed
to give incentives in the form of tax removal which should be indebted by paying compensation
in certain numbers which is i ntended to give addition to the state income and to give a chance to
the disobedient tax payers in order to be obedient, so that it can contribute to the increase of the
obedience of the tax payers in the future. Generally, the kinds of tax amnesty which can be
recognized are as follow: 1) the amnesty which still make the payment of tax core compulsory,
including interest and its fine, and it is only the sanction of tax punishment which is removed, 2)
the amnesty which make the payment of unpaid tax core a nd its interest in the past compulsory,
but the fine sanction and punishment sanction of the tax is removed. 3) the amnesty which make
the payment of tax core compulsory, but the sanction of interest, fine sanction, and sanction of tax
punishment are removed. 4) the amnesty of the tax core in the past, including the sanctions of
interest, fine, and punishment sanction.
There is a perception that tax evasion and tax avoidance which take place more
frequently in the developing countries are caused by the lig ht sanction and punishment, as well as
the weak law enforcement. Relevant to that, there are now many governments which try to
enforce the legal approach as the reference by giving maximal sanction and punishment. This
theoretical analysis is confirmed by Becker (1968) and Allingham and Sandmo (1972) who wrote
that the very ambitious tax avoidance in the developing countries can only be reduced by
applying heavy punishment, and to enforce that, the design of government policy is attempted to
enforce the optimal use of punishment. Even though the policy design has included the use of
maximal sanction and punishment, in practice, this attempt usually fails because the policy is
considered ambiguous. In terms of policy content of tax amnesty (sunset policy), in one hand it
constructs the firm sanction and punishment. However, in another hand, it constructs the attempt
to suggest the voluntary attitude toward the tax evasion or tax avoidance in the past which mostly
were done deliberately. There is a view that th e decision of sanction and punishment is
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considered as a rational measure. Meanwhile, the recommended voluntary attitude toward the tax
evasion and tax avoidance is regarded as irrational measure and political in nature (compromise,
bargaining, and accommodation). If it is true, then the attempt to reduce the tax avoidance and tax
cover-up is simple namely by giving heavier sanction and punishment and also by increasing the
audit frequency. Punishment is allowed to be used as the shock therapy or deterrenc e effect by
creating a set of legal norm usually used in bribery and corruption cases, but the end result may in
fact decrease the tax obedience and erode the trust to the public institution (Knack and Keefer,
1997).
In addition to the historical reality, it can be seen that in most government the measures
to deal with and overcome the tax amnesty are encouraged by four triggers. The first is
Underground Economy activities. The underground economical activities are ones deliberately
done by an actor of institution or individuals who purposely hide, avoid, and cover up the
payment of tax which takes place in that country. This is usually called tax evasion. According to
Schneider, the activity of tax cover up in the developed countries can reach 14 -16% of PDB.
Meanwhile, in the developing countries, it can reach up to 35 -44% of PDB. The second is capital
flight. The government finds it difficult to collect the tax or capital which has been brought or
parked in other countries. The third is the deception of f inancial transaction. The advancement of
international financial instrument has prompted the big companies to do illegal profit shifting to
other countries. The fourth is Budgeting Politics. Nowadays, the sunset policy tends to be
associated with the policy of budgeting politics especially to deal with the growing contraction of
state budget. In fact, like Cowel (1990) stated the issue of tax avoidance and other illegal
activities cannot be separated and closely related to fiscal controlling instrument in which the
government is attempting to use in the settlement of economical policy.
Even though the tax amnesty (sunset policy) has several positive aspects including the
additional income from the ransom, company bookkeeping can start from the new numbers w hich
is clean from tax cover up practices, but there are also some negative effects. The negative aspect
is that they who cover up the tax in fact receive the facilities and special treatment which is of
course considered unfair by them who pay the tax fai rly. This condition can motivate those honest
tax payers to do the tax cover up since they think that in certain time the government will give
another tax amnesty. Seemingly, it triggers a public debate as it was indicated by Alm, James and
Beck (1993), that tax amnesty often deals with tax compliance. The tax amnesty can result in
state income in the short time as it happens in Italy which can collect the income up to 1.4 billions
euros in the end of the program and reduce the administration cost and solv e the tax avoidance to
the honest path. However, in the long term it will decrease the level of tax compliance. Those
honest tax payers may feel annoyed with this amnesty and tend to describe that the amnesty as
unfair matter and as well as feeling that th ey are less motivated to comply or obey the rules. They
interpret the amnesty as the mark that tax avoidance is forgivable and does not result in sin
(Leonard and Zackhauser, 1986). The issue begins to have moral dimension since it touches the
sentiment of tax payers. Therefore, the success of tax amnesty does not only depend on the
impact of income in the short time (economical philosophy) but also on the long term impact,
namely tax compliance (social philosophy). Meanwhile, according to Slemrod (1992), tax
compliance is required for the efficiency and fairness as well as to develop social capital. Based
on that theoretical fact, in order to decrease the tax avoidance, the effective policy design (sunset
policy) requires the thorough understanding of beha vior aspect of tax compliance. If the
individual attitude aims at compliance as the social function and cultural norm, then the norm can
be placed in the critical position of policy instrument as the complement which can be used to
strengthen the business.
The tax compliance is a complex behavioral issue. It relates to the matters of norm,
ethics, attitude, value, culture, ethnic, morale, and religion. This fact is similar to that revealed by
Steenbergen, McGrow, and Scholz (1992) that personal ethics whic h is based on religion and
cultural norm may have impact on the free tax compliance behavior of the fiscal exchange
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Wardiyanto: Tax Amnesty Policy: The Framework Perspective of Sunset Policy Implementation
between government and tax payers. Meanwhile, the study done by Ronald Cummings, Jorge
Martinez-Vasquez (2005), shows that the tax complianc e increase through the individual
perception of the fair taxation system and that government provide goods and services which are
valued with the income. In the cultural setting, the compliance will increase with the
strengthening efforts, however when the tax regime is described as unfair, then the impact on the
compliance become less. This construction is supported by Elster (1989) and Naylor (1989) that
the compliance to the rules can be influenced by social norms and collective behavior. In specific,
it can be illustrated that in the interaction process between the tax payers and the government, if
the government can behave fairly and responsibly, then it can pose positive impact to the tax
reporting behavior as well as the perception that the government uses the tax income for the
expected social purposes. In contrary, if the tax payers perceive that the government is unfair and
cannot account for the tax income in accordance to the expected social purposes, then it can affect
the honest tax reporting behavior to the tax avoidance.
In reality, the compliance of the tax payers is not only influenced by individual
perception on the ability and responsibility of the government in managing and using the income
sources but also by other factors like the suppl y of public goods, strengthening style, or the
involvement in the decision making. According to the study by Alm, Jack and McKee (1993),
ways and process of decision making on the public budget affects the level of compliance. They
found that the compliance increases when the public good supply is done through the choice
rather than defined determination and when the result of the policy is widely known in order to
gain support. Meanwhile, in another study, it is found that the defined rule enforcement can
influence the compliance (Alm, McClelland, and Schulze, 1999).
The debate of tax amnesty also reaches the political philosophy domain. The study done
by McClelland and Schulze (1999) and Feld and Tyran (2002), show that the voting on the tax
issue and agenda has positive impacts on the tax compliance in order to design non -amnesty.
Leonard and Zackhauser (1986) note that some people become tax arrearers or tax delinquents
just because of a little mistake of administrative reporting. With such condition, it is still possible
for individuals to correct their behavior toward the one of honest people when they are not faced
with the mechanism of legal proceedings. Meanwhile, the study by Pommerehne and Wek Hannemann (1996) shows that the tax avoidance rarely happens in the areas in which the control
level of the direct politics is high. The similar result was obtained by the research by Alm, James,
Torgler (2004) which was conducted in USA and Europe, when the power and democracy
enforcement defined in the ju risdiction/authority of both countries have arisen the high tax
morale. Similar thing is also found in the research by Feld and Frey (2002) in which it is
concluded that the difference in the handling of tax payers through the firm taxation authority
becomes very important. Institutionally, the relationship between the tax payers and the
government must be constructed and understood as the “psychological contract”. Most tax payers
can participate in the process of political decision making through “popular rights”, in which
most contracts are based on the trust. If the ’psychological contract' can build the trust between
the agent of the government and the tax payers, then it will be very helpful in the establishment of
’tax morale’.
The phenomenon in which tax compliance is associated with political participation is also
described by the result of study done by Ronald G Cummings, Jorge Martines -Vasques, Mc Kee,
Benno Torgler (2005) in Costa Rica and Switzerland which describes that tax compliance can
only be increased after the voting is taken, when people have a chance to discuss first before
electing. So, administering voting by discussion can persuade various obligations of people as the
tax payers so they can know and be aware of the importance of contri bution to supply the public
goods. Individually, people will comply more when they find a chance to elect designed by
communication between the group members which will elect. In another hand, the voting without
discussion will result in mixed findings. Th en, the discussion which is held before the voting is
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the essence prioritized to improve the cooperation between groups. This will enhance the moral
values of the free riders and then improve the social norm to the compliance and mobilize the
higher tax compliance.
Meanwhile, the tax compliance can also be associated with political institution and trust.
The political institutions are said to have influence to the compliance of the tax payers if they feel
to have interest on the selection of society repre sentatives in the political institutions and
appropriate to represent them as well as the feeling that their interest and wish are in accordance.
This relationship conditioning tends to improve their willingness and awareness to pay tax. In
another hand, if the political institutions tend to be corruptive, it directly or not will decrease the
level of society trust as the tax payers, and as the implication, it will decrease their willingness to
cooperate. Even though all mentioned experts agrees that tax is a price which must be paid for the
government service, in the perspective of the tax payers it is a very sensitive things which is
closely related to the ways of the government is using of making use of the income from the tax.
If the tax payers feel or believe that what they have paid is not used appropriately as it is intended
for and misused, such as it is corrupted by the officials, then it is very normal if finally the tax
payers reconsider their compliance. Therefore, the feeling of their relation wi th the country is not
coercive in nature, but it is mutual one. Individuals will feel that they are tricked if the tax income
is not spent efficiently or in other words the country cannot keep and hold the promise, then the
tax compliance will decrease.
Contrary to results of most studies which tends to strengthen the view that the amnesty
will increase the tax compliance, the results of advanced study done by Alm, McKee and Beck
(1990) shows that the amnesty does not automatically increase the tax complian ce. In the study
done after the amnesty, it is seen that it is possible that in the first amnesty there is indication of
positive effect of the amnesty on the tax compliance. However, in the second amnesty, it is seen
that the tax compliance decreases. Acc ordingly, based on this finding, they proposed that if the
country wishes to increase the impact of tax amnesty in the long term, then the country must have
reliable and accountable commitment and there is only one amnesty per generation.
Measuring the success of the implementation
According to MF Lofchie (1989) oftentimes the implementation of certain policies is
unsuccessful because of the limited administration, economy, and politics. The first, in term of
administration, there are two sources of disor der and inability of administration namely the lack
of experts and the lack of political support for the civil officials and bureaucrat in the third world
to process data in order to adjust it with the political needs. The second, the economical matter,
namely the lack of fund to finance a number of projects and programs which will be carried out
by the government. The third, the political obstacles of the implementation of the policy. The
form of this obstacle is the absence of social discipline in the law , the disbelief to the state
institutions, the disobedience of the government official to the rule and instruction defined for
them, and the frequently happening conspiracy between government officials and certain groups
whose behavior should be governed b y them.
Based on the above theoretical philosophy, predicting the level of success of tax amnesty
(sunset policy) implementation which will end on December 31 becomes an interesting thing. At
least, considering the mistakes and failures of the sunset polic y implemented in 1979 and 1986,
of course it is expected that the implementation of sunset policy in 2008 will not undergo similar
results. Implementing the sunset policy is actually not as simple as it is imagined since the
construction of the sunset pol icy implementation is complex, and with political dimensions. It is
in line with the view of Merilee S. Grindle (1980) that the conceptual implementation model of
the policy is a political process and administrative process which focus on three components .
They are the policy, implementation activities, and outcome. The purpose of the policy refers to
the clear details of purpose and target. Implementation activities, on another hand, refers to the
political and administrative process of the implementation of the policy to achieve the purpose of
5
Wardiyanto: Tax Amnesty Policy: The Framework Perspective of Sunset Policy Implementation
the policy. Meanwhile, outcome is defined as the visible changes which occur after the policy is
implemented as well as the acceptance toward this. Borrowing Grindle’s perspective, we can
understand in more detail the implementation activities of sunset policy which is seen from two
sides, namely policy content and implementation context. Seen from the policy content, there are
six aspects, as follow:
First, Interests which are influenced by the policy. In this cont ext, the interest which is
influenced by tax amnesty (sunset policy) is individuals or organizations deliberately or
undeliberately avoid the tax or cover up the tax. If so, this interest influenced by policy is closely
related to the expectation of the bi g number of returns from the fine of the passing year tax
income. In line with that, the capacity and ability of tax officers to identify elaborately, clearly,
and accurately the amount and spread of avoidance and cover up becomes a critical thing. If th e
tax officers are not able to see clearly and accurately the interest influenced by the policy,
especially the high number of tax avoidance or tax cover up and their spread, then it cannot be
expected that the sunset policy will be implemented sufficientl y.
Second, The obtained benefits. The clarity of advantage of sunset policy will influence
the behavior and measure taken by tax evader and embezzlers. If the evaders and embezzlers
consider, perceive, and believe that the policy can give them benefit in term of fairness and
security for them, then this policy tends to be used well by them. In contrast, if the policy is
considered, perceived, and believed not to give fairness and security for them, then they tend not
to take or ignore this policy. The co nstruction of benefit for the tax evaders and embezzlers
usually tends to be considered from three aspects which complete each others namely juridical,
economical, and administrative aspects. In terms of juridical aspect, the question which can be
asked is whether the sanction and punishment constructed by the state is light or heavy? In terms
of economical aspect, the question which can be asked is whether the kinds of fine designed is
considered very heavy or quite light? Whether the fine imposed will be come fixed burden which
is productive or not productive? Meanwhile, in terms of administrative aspects, the question
which can be asked is what kinds of administration ease which is given by the country? If the
state institution is able to describe clearly and transparently the benefit obtained by the tax
evaders or embezzlers, either juridically, economically and administratively, then the tax evaders
and embezzlers tends to voluntarily pay back their unpaid tax plus its fine and interest. However,
if the three aspects are considered and believed not to give benefits for the tax evaders, then it is
possible that the tax evasion and avoidance will be bigger.
Third, the expected degree of change. What kind of change is actually expected to take
place with the policy? In the theoretical perspective, there are two main reasons, namely the
changes in the state's income and in the behavior of the tax payers. Generally, the tax amnesty or
sunset policy tends to be aimed at adding and increasing the state’s incom e. In the government
which is undergoing chaos, oftentimes the number of tax avoidance and embezzling increases and
this will worsen the national economy since the total income of the state decreases. In the modern
society which follows democracy principle s, the tax sector becomes one of main sources of state
income, so that the high number of tax evaders or embezzlers disgraces the country. With two
mentioned reasons, it is very clear that the economical factor especially in terms of the increase of
national income is made as the reason of the expected change. However, according to the study
done by Hasseldine (1998), the high amount of money collected from tax amnesty is not more
than 2.6% of total tax income. Meanwhile, the smallest collection shows the n umber of 0.008%.
Relevant to this fact, the question which must be answered by DJP is how big the change target of
tax income addition yielded with this program? In addition to the change degree in term of
economical aspect, it seems that the degree of exp ected change can cover the aspect of behavior,
namely the improvement of voluntary and awareness of the tax payers. It is expected that with the
increasing awareness of the tax payers, the number of individual or group which cover up or
evade the tax will lower. In line with this, the question which should be answered by DJP is how
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much percent of the increase of the tax payers’ awareness is expected with the completion of the
sunset policy program?
Fourth, the position of the policy maker. The position can be seen from two aspects
namely the legality of the policy and the place where the policy is made. In the legality order, a
policy will have high and binding legal authority if it is regulated in the act. The question is
whether the tax amnesty (sunset po licy) in Indonesia is regulated in certain act or it is only
attached to other acts. Of course, the legality level will influence the applicability level and
perception of the society which have interest with a certain policy. Related to the place where a
certain policy is made, the question to ask is whether the policy is a national policy is it regional
one. If the tax amnesty (sunset policy) is a national policy, then its implication is more
complicated compared to if it is merely a regional policy.
Fifth, program executor. The implementation of the sunset policy program is not only
determined by the entity of the implementation. It also covers the readiness before the program is
executed as well as the budgeting ability. The readiness of the program can be seen, among
others, in the socialization process, the tools, methods, media infrastructure used, the intensity or
coverage of the socialization as well as the image which will be built and the message to convey.
To support the socialization program which can cover and mobilize the awareness of the tax
payers, then the ability of supplying fund as the accompaniment of the implementation becomes
an important factor. In addition, the administration ease including the availability of network or
the ease in the process of administration completion becomes other important factors.
Sixth, mobilized resources. Resources refer to the capacity and ability of individual in
implementing the program. In relation to sunset policy, the ability and capacity of the p rogram
executor must be met, either in terms of skill, professionalism, expertise, or the sufficiency of
resources.
Meanwhile, in terms of the implementation context, it can be seen from three aspects, a)
Power and interest In this context, what is the a ctual power and interest which is behind the tax
amnesty/sunset policy. In the institution perspective, the policy power is under the control of the
directorate general of tax. Through its power and authority, this institution intends to add or
regain the state income which has not been detected from the tax sector in a relatively short time
by giving amnesty to the tax payers who are considered deliberately or not to not pay their
obligation to pay their tax of the previous years. Meanwhile, the interest of tax amnesty/sunset
policy in 2008 is a temporary effort to help supply the state budget which is undergoing a
contraction impacted from the global recession especially that of the hike of world oil price, b)
The characteristics of authority institution. The bureaucracy institution characterized by
bureaucracy chaos, inadaptiveness, complicated and inefficient procedure frequently become the
part which is a part of the obstacle of the policy implementation. Seemingly, the characteristics
are described in the implementation process of the current sunset policy. Although the authorized
institution has planed the sunset policy in the budget year of 2007, the socialization is just done
on June 2008 and with the socialization which seems not well organized, and its echo and
coverage is not so wide, c) Obedience and awareness. The purpose of tax amnesty/sunset policy
is not only to regain the lost tax income, but it is expected that in the future it can build the tax
compliance. However, building tax compliance i s very difficult since it depends on so many
variables like the existence of participation of the tax payers in the process of policy making, the
improvement of tax service system, fairness and consistency in the implementation of sanction
and punishment, the willingness and courage of the government to guarantee the legal security of
the debtors or tax evaders after the program, the behavior of the tax officers, the trust of the clean
institution, the transparency of the use and allocation of tax income so urces for public goods. If
those variables can be fulfilled, then it is possible that the compliance of the tax payers take place.
In contrary, if those variables are not fulfilled, then the tax evasion or avoidance will increase. In
addition, the awareness of the bureaucracy which aims at more efficient, easier, friendlier,
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Wardiyanto: Tax Amnesty Policy: The Framework Perspective of Sunset Policy Implementation
quicker, more transparent, more responsible effort of course becomes other factors which affects
the access to develop the tax compliance in the future.
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