ANALYSIS OF FACTORS THAT AFFECT TAX COMPLIANCE OF HOTEL ENTREPRENEURS IN PAYING TAX GALIH PRASETIYO

Transcription

1 AALYSIS OF FACTORS THAT AFFECT TAX COMPLIACE OF HOTEL ETREPREEURS I PAYIG TAX GALIH PRASETIYO ACCOUTIG PROGRAM STUDY ECOOMICS AD BUSIESS FACULTY BRAWIJAYA UIVERSITY 2013

2 ACKOWLEDGEMETS Heartiest gratitude to Allah SWT was offered for all His blessings and guidance, so the writing of minor thesis titled "AALYSIS OF FACTORS THAT AFFECT TAX COMPLIACE OF HOTEL ETREPREEURS I PAYIG TAX has been completed. There are a number of people without whom this minor thesis might not have been written, and to whom I am greatly indebted. Therefore, I would like to give thanks to Dr. Erwin Saraswati, Ak., CPMA., CSRS as my supervisor that has been giving her best contribution in this minor thesis arrangement. I would also like to thank to my great parents for their motivation, to my classmate in International Accounting 2009 and especially to Denissa adya Tiffany as my best partner. The researcher hopes that this minor thesis will be useful for them who read. The researcher also needs comment and suggestion for the future improvement. Malang, July 9 th 2013 Author

3 AALYSIS OF FACTOR THAT AFFECT TAX COMPLIACE OF HOTEL ETREPREEURS I PAYIG TAX Penulis: Galih Prasetiyo Dosen Pembimbing: Dr. Erwin Saraswati, Ak., CPMA., CSRS University of Brawijaya Malang, 2013 Abstrak Tujuan penelitian ini adalah menganalisis factor-faktor yang berpengaruh terhadap kepatuhan wajib pajak hotel di Kota Batu. Metode yang digunakan adalah metode penelitian survey menggunakan kuisioner sebagai instrument penelitian, dengan responden seluruh pengusaha hotel yang ada di Kota Batu. Analisis yang digunakan dalam penelitian ini adalah analisis regresi linier berganda. Hasil dari analisis data menyebutkan bahwa ada beberapa variabel yang berpengaruh secara positif dan signifikan terhadap kepatuhan pajak yaitu variabel pemeriksaan pajak, sanksi pajak, persepsi pajak dan kesadaran wajib pajak, sedangkan variable yang tidak menentukan kepatuhan pajak adalah undang-undang pajak, penyuluhan pajak, kondisi keuangan, dan system pemerintahan dan hokum. Kata kunci: kepatuhan pajak pengusaha hotel, pemeriksaan pajak, sanksi pajak, persepsi pajak, kesadaran wajib pajak, undang-undang pajak, penyuluhan pajak, kondisi keuangan, system pemerintahan dan hukum.

4 AALYSIS OF FACTORS THAT AFFECT TAX COMPLIACE OF HOTEL ETREPREEURS I PAYIG TAXES Author: Galih Prasetiyo Supervisory Lecturer: Dr. Erwin Saraswati, Ak., CPMA., CSRS University of Brawijaya Malang, 2013 Abstract The objective of this research is to analyze what kind of factors that affect tax compliance of hotel entrepreneurs in Batu City. The method used is survey research method by using questioners as the research instrument. The respondents are all of the hotel entrepreneurs in Batu City. Analysis used in this research is the multiple linear regression analysis. The result of this analyses state that there are some variables which give positive and significant influence towards the tax compliance, those are: tax audit, tax sanction, tax perception, and tax payers awareness variables. While the variables of tax laws, tax education, finance condition, and the system of government and law are not the factors that determine the tax compliance. Key words: tax compliance of hotel entrepreneurs, tax audit, tax sanction, tax perception, tax payers awareness, tax laws, tax education, finance condition, the system of government and law.

5 TABLE OF COTET ACKOWLEDGMET... TABLE OF COTET... List of Table... SUMMARY... i ii v x CHAPTER I ITRODUCTIO 1.1 Background of Research Research Question Research Purposes Benefit of Research... 8 CHAPTER II LITERATURE REVIEW 2.1 Literature Review Tax Definition Functions of the Tax Classification of Tax Tax Collection System of Tax Collection The Principle of Tax Collection Local Government Local Tax Tax Compliance Hotel Tax.. 36

6 2.1.6 Previous Research. 43 CHAPTER III RESEARCH METHOD 3.1 Research Variable and Operational Definition Rules of Tax Tax Education or Counseling Financial Condition Tax Sanction Perception of Tax Tax Audit System of Government and Law Taxpayers Awareness Measurement Scale Population and Sample of Research Population Sample Data Collection Types of Data Data Collection Method Instrument of Test Reliability Test and Validity Test Reliability Test Validity Test Method of Data Analysis Descriptive Statistic.. 57

7 3.6.2 Test Assumption Classic ormality Test Multicollinearity Test Heteroscedasticity Test Multiple Linear Regression Analysis 58 CHAPTER IV FIDIGS AD DISCUSSIO 4.1 General Description of Respondent General Description of Respondent by Gender General Description of Respondent by Age General Description of Respondent by Level of Education General Description of Respondent by Firm Age General Description of Respondent by Income Descriptive Statistic Instrument Test Validity and Reliability Test Classical Assumption Test Multiple Linear Regression Discussion. 73 CHAPTER V COCLUSIO AD RECOMMEDATIOS 5.1 Conclusion Limitation of The Study Suggestions. 87 LIST OF REFERECES... 89

8 LIST OF TABLES o. Table Title Page o. 1.1 umber of Accommodation Hotel by District Realization of Indigenous Local Revenue from 4 Local Tax Sectors 4.1 Sample and Response Rate Gender Age Level of Education Firm Age Income Descriptive Statistic Variable ormality Assumption Test Multicollinearity Test Heteroscedasticity Test Test Result of Factors that Affect Tax Compliance 71 of Hotel Entrepreneurs in Paying Tax

9 CHAPTER I ITRODUCTIO 1.1 Background of Research Domestic development can work well if there is a good relationship between the central government and local government. The central government as the main institution has rights to monitor developments in each local government, and local governments have tasks to develop and manage all the potencies that exist in their areas. Based on the rules set by the government, the development process can work well as expected. The new rules related to regional autonomy can make each local government manages and improves all sources of income in its area and also creates the progress of efforts to enhance the development of the State. Local Government, as an inseparable part in the development of the state, has an important role in managing all sources, both natural resources and human resources that come from the region itself. According to Solichin (2002), based on legislation that states the role of local government as an organizer and regulator of everything related to regional autonomy clearly, causes each region has broad authority in governance that makes each region be able to create and dare to do a development which is different from other regions. Therefore, it means that each region which by law has been given the freedom to find its own identity, can rationally determine what is best for its own area. By maximizing all of the financial resources that are useful as a source of regional autonomy, the local

10 government can use them accordance with applicable regulations. The goal for local government to promote development in all fields such as health, education, infrastructure and others are for the sake of society s welfare. In the process of regional development, local government needs substantial funds to rub its plans. Local government uses financial resources from local or regional tax which is commonly referred to as revenue. By maximizing local revenue sources such as industry, tourism, and also from other sources of income derived from the fields of business management services such as hotels, restaurants, hospitals and other sources of income. The Local Government can utilize regional tax and local retribution for its own region. Local tax is one of the sources that is very important for Local Government. By optimizing revenue from local taxes, local governments can carry out all development plans in its area in accordance with its expectation. Because in its development, the local government needs funds or budget obtained from the Regional Tax as one of the sources of revenue in a considerable amount. This is reinforced by the enactment of Laws o. 28 Year 2009 on Regional Taxes and Regional retribution that came into effect from 1 st January 2010, which marked the era of taxation reformation and retribution in Indonesia, an which each local government has the authority to levy regional taxes and Local retribution as it appears on the Act o. 28 Year However, in practice the regulation on regional tax and retribution areas that will be operational in the collection of the legal basis of a kind of local tax and retribution areas, which must be made by the local government based on the provisions of Law o. 28 Year 2009 is still

11 needed. It is intended that the implementation of the collection of local taxes in accordance with prescribed rules, can support the process of regional development, which is one element of the whole development of the state, can run well. Regional development and construction of the state has one main goal that is to improve the welfare of the community. By optimizing the revenue sources from Local Taxes, the main objective of regional development can be realized. One type of regional tax that can give effect to the Local revenue is Hotel Tax. Hotel Tax is one of the potential revenue resources in the future, especially for Batu City which officially become one of the tourism city in East Java. By having a lot of tourist places, it will attract the interest of not only domestic tourists but also foreign tourists who want to have vacation in Batu. It has a direct impact on the number of entrepreneurs and investors from inside and outside the city who want to invest in special services such as Hotel, Inn, Motel, and other lodging types. This is evidenced by data collection conducted by the Central Statistics Agency of Batu City by dividing the area of the hotel in accordance with sub-district where the hotel is built. Table 1.1 umber of Accommodation Hotel by District District Hotel Room Bed Years Batu Junrejo Bumiaji Total Source: Badan Pusat Statistik (BPS) Kota Batu

12 Based on the data it can be concluded that the construction of hotels in Batu is running very rapidly, it proves that the economic sector in the field of hotels in Batu has benefit potency in the future. As more and more construction of hotels in Batu, it will automatically affects the level of revenue derived from the Hotel Tax. Here are the results of data collection conducted by the Central Statistics Agency of Batu City on the development of local revenue from local taxes each year. Table 1.2 Realization of Indigenous Local Revenue from Local Tax Sectors Kind Of Tax (000 Rp) Target Realization Target Realization Hotel Tax Restaurant Tax Entertainment tax Advertising Tax Street Lighting Tax Parking Tax Batu City Source: Badan Pusat Statistik (BPS) Kota Batu Based on the data it can be concluded that the development of Batu City that has become one of the tourism icons in Indonesia has brought a positive impact on local revenues derived from local taxes. One type of regional tax that can give positive impact for the local income is Hotel Tax. This is evidenced by the increasing number of hotels. But the Hotel Tax targets set in 2010 were not in

13 accordance with the results of the actual realization of the hotel tax. Whereas in 2011, the hotel tax has exceeded the target set. This result doesn t mean that the hotel entrepreneurs in Batu have been obedient in paying taxes, because as we see in table 1.1 the construction of hotels in Batu that continues to increase in each year should provide a far greater impact on revenue in the hotel tax sector. System of taxation in Indonesia which uses self assessment system requires every taxpayer to prepare, calculate and report the amount of tax payable to be paid. This proves that tax compliance is a major factor that determines the amount of tax revenue from this sector. Due to the compliance of every taxpayer to pay the tax in accordance with the real economical condition of the tax payers will be very influential in local revenues. There are several factors that affect tax compliance in paying taxes, such as the research that was done by Eviant (2002). Eviant found that the tax laws were clear and unequivocal, and the awareness of the taxpayers to pay taxes has most influential and significant impact on the level of tax compliance in paying taxes. While research on the factors that affect the level of tax compliance was also done by Rizky (2011). The results of these studies are that strict tax penalty factor is very influential and has significant impact on the level of tax compliance in paying taxes. Due to the strict tax penalties, every taxpayer is afraid not to pay taxes. Research related to factors affecting tax compliance was also done by Somang (2006). Results from these studies were that the most influential factor and a significant impact on the level of tax compliance is the examination conducted by the tax officers on the amount of assets owned by the taxpayer. In

14 this research taxpayers continue to use the self-assessment system, but at the time of reporting, tax officers are required to check the truth of the report. In contrast to researches that were done by Supriati and urhayati (2008), the results of the researches showed that the taxpayer s knowledge is very influential and makes significant impact on tax compliance in paying taxes. If every taxpayer has the knowledge of the tax, then every taxpayer will understand the advantages and disadvantages obtained from paying taxes, so the level of tax compliance in paying taxes will increase. From all the researches that had been done, it can be concluded that each researcher had different results. This happened because each researcher did research in different areas and on different taxpayers. By looking at the current condition, the researcher wants to investigate the level of tax compliance hotel by using the 8 (eight) variables such as: Tax Laws, Tax Education, Financial Condition, Tax Penalties, Tax Audit, System of Government and Law, Perception of Taxes and Taxpayers awareness. Researcher wants to investigate whether the 8 (eight) variables have direct effect on the level of tax compliance of the hotel entrepreneurs in Batu. Therefore, researcher is interested in doing research with the title: Analysis of Factors That Affect Tax Compliance of Hotel Entrepreneurs in Paying Taxes

15 1.2 Research Question Based on the above issues, the formulations of problems that can be taken are as follows: What factors can affect tax compliance of hotel entrepreneurs in paying taxes? 1.3 Research Purposes Research objectives of this study are to examine the effect of: 1. Tax laws for tax compliance hotel entrepreneurs in paying taxes. 2. Tax education for tax compliance hotel entrepreneurs in paying taxes. 3. Financial condition of tax compliance hotel entrepreneurs in paying taxes. 4. Tax Sanctions to tax compliance hotel entrepreneurs in paying taxes. 5. Tax Audit for tax compliance hotel entrepreneurs in paying taxes. 6. The system of government and law for tax compliance hotel entrepreneurs in paying taxes. 7. Perception of Taxes for tax compliance hotel entrepreneurs in paying taxes. 8. Taxpayer awareness of tax compliance hotel entrepreneurs in paying taxes.

16 1.4 Benefits of Research 1. Theoretical Benefits Theoretically, this research is expected to add information and knowledge about the regional tax that is more concrete for Public Sectors such as Department of Revenue, Local Government and particularly economic practitioners like hotel entrepreneurs. So in the future, sources of local revenue from hotel taxes can be managed as well as possible. 2. Practical Benefits The results of this study are expected to be useful for academics, Local Government Institutions, and Hotel Entrepreneur. 1. For academics this study is expected to provide insight and information about the factors that will influence the level of tax compliance of the hotel entrepreneurs and can be used a reference to conduct advanced research in the future. 2. For Local Government institutions this study is expected to provide insight and information about the factors that will influence the level of tax compliance of the hotel entrepreneurs so that local governments can utilize future sources of local revenue derived from Hotel Tax. 3. For Hotel Entrepreneurs this study is expected to provide insight about the importance of regional development from the Hotel tax. So hotel

17 entrepreneurs can report the amount of tax that they own in accordance with the actual situation. 3. Student Benefits For the author, this study is an opportunity for the author to add information and knowledge about the types of local taxes, the function of local taxes as local revenue sources, as well as sanctions imposed if the tax payers avoid to paying them. In addition, the author can learn and explore all of the phenomena associated with the hotel tax as a local tax.

18 CHAPTER II LITERATURE REVIEW 2.1 Literature Review Tax Definition In terms of its history, this tax issue has existed since long time ago. Although at that time it was not called a "tax", but it was a voluntary gift from the people to their king. The subsequent development of a voluntary administration, the nature of the tribute was turned into forced administration in the sense that the gift was "mandatory" and set unilaterally by the state (kingdom). In other words "tax" which was originally a gift turned into a tax collection, it was reasonable because at that time, the government needed to collect great fund not only for maintaining the interest of the state, which was defending the country and protecting the people from enemy attacks but also to maintaining and enhancing the country's development for the welfare of its community. That is the changing in the history of tax collection in accordance with the development of society and the state, namely in the economic, social, and matters. Tax problem is a problem for society and the country, and every person who lives in a certain country has to deal with taxes. Therefore, the tax issue is also a problem for all people in the country. Thus each person as a member of the public must understand and know all the problems related to taxes, either to the

19 principles of tax, type or variety of tax applicable in his country, to the manner of tax payment and to the rights and obligations as the taxpayer. Many experts in the field of taxation, give different opinion and definition about tax. But from their various opinion and definition, actually they have the same meaning and purposes. Definition given by Soemitro (Waluyo, 2005: 2) is stated as follows: "Taxes are people s fee to the state treasury (the changing of wealth from the private sector to the government sector) based on the laws (can be forced) which doesn t get services that can directly be pointed and can be used for funding the common expenditure." Another definition about tax was given by Soemahamidjaja (Munawir, 1992: 2) namely: "A tax is a mandatory fee, in the form of money or goods, which are levied by the authorities based on the norms of law, in order to cover the cost of production of goods and collective services collectively in achieving the general welfare." From the definition proposed above, it does not seem the term "forced" because this term is changed with the term "mandatory fees". This means that tax is not imposed but it is a duty that must be carried out by people who become the part of the society in a country. From the two definitions that have been shown above, it can be concluded that the tax is one of the dues levied by the government

20 to the community which is aimed to meet the state treasury which is then useful for the development of the state itself. In addition, taxes which are imposed must be paid by every taxpayer in the country. Tax payments are allocated to fund the government s routine expenditure and the rest is for public saving which becomes the main source to fund the public investment. So it can be conclude that the main purpose of tax collection is as a source of finance for the state (budgetair). After discussing about the meaning of the tax. We should know that in the tax laws, the tax has been divided or classified into various major categories. Their categories are the tax function, tax classification, tax collection, the system of tax collection and the principle of tax. Each classification has a meaning and different purpose. Will be discussed later the function and meaning of each of these categories Function of the tax Started with the definition given by the tax expert, it suggests us that the government collect taxes primarily or solely for obtaining money or funds to finance government expenditures. Governments levy taxes primarily or solely to earn as much money as possible to finance its expenditures both are for routine needs and for development. Countries which can be meant as big families, require financial resources to finance the continuation of their life. In the family, the financial sources can be salary / wages and profits of the business. Whereas in a country, the main financial sources are from taxes and fees. In this case, the tax

21 function is as a tool to earn money to improve the state treasury (budgetair function). But basically the tax function is not only as a source of finance, but it also has a broader function, tax can be used as the set function (regulerend). Tax as a set function can be used as a tool to organize or carry out state policy in the field of economic and social development. Its function is to be used to set tax as a means to achieve certain goals that are located outside the financial sector or to regulate the private sector. The example of tax function as a regulator is high import duties for goods imported which is imposed by the government. The purpose of doing this is to protect domestic production. In addition, the government implemented a tax provision for certain types of industries in the country, which is intended to encourage or to motivate the producers to produce high-value goods to be exported to foreign countries, and also to motivate the investors to increase their investments in the country. Tax function is not only as a regulator but also affects the lifestyle of the people in the country. The purpose of the government to provide a high tax on luxury goods is to avoid any consumptive lifestyle. The government also gives high taxes on alcoholic beverages, which is aimed to reduce the consumption of alcoholic beverages by the community Classification of tax In tax law there are different types of taxes distinction, which are divided into major factions. These distinctions and divisions have different functions. Its function is to facilitate the work in practice, so it is just as a tool to show to which

22 taxes are certain regulations in laws are used. There is also another function which is addressed to the scientific goals. Tax law should always pays attention to these certain characteristics and properties. The most important thing is that tax law should always be aware of the principles that form the basis of a tax, hold it tightly and should oversee the application of those principles. The following is the tax classification which is distinguished according to its group, its nature and its collectors institutions. 1) Tax classification which is according to its group has been divided into two kinds both are direct taxes and indirect taxes. Here's the meaning of direct taxes and indirect taxes. a. Direct Taxes are taxes which are charged to the tax payers and cannot delegated to other people. In the administrative sense, a direct tax is imposed repeatedly at certain times (periodically) based on tax assessment. Direct tax is associated with the object of the tax establishment by a tax subject to a period called a tax year or fiscal period. Direct tax collections do not always use the tax assessment, because in a country which has implemented a self-assessment system, a Tax assessment is not used anymore. The example of direct taxes is income tax which should not be calculated as the selling price element or as the cost of the company's business. b. Indirect Taxes are taxes that may be delegated or passed to other parties. On direct taxes, the taxes are intended directly to the taxpayer itself, while on indirect taxes, the taxes are intended to the third party

23 (consumer) while the second is a manufacturer or services entrepreneur, as a taxpayer who serves as tax collector for the government's interests (the tax authorities). In other words, producers or service entrepreneurs, as taxpayers can charge their tax burden to a third party that is the consumer or buyer and ultimately buyers or consumers who have to bear the tax because consumers can not charge tax to other parties. One example of an indirect tax is value added tax, the tax which should be burdened to the consumer as the owner of goods or services obtained or purchased from producers or service entrepreneurs. Some benefits of tax differentiation in direct and indirect taxes are for the purposes of systematic in science, for example, to determine the onset of payable taxes, tax expiration and subsequent bills. The other benefit is to determine how to conduct the judicial process due to a dispute. Other than that, distinction can be used to avoid the tax immunity of foreign representatives, who are only exempt from direct taxes but not for indirect taxes. 2) Tax according to its nature has been divided into two, subjective tax and objectives tax. Here is the meaning of subjective and objectives taxes. a. Subjective tax is the tax levied on the self stems person (the subject). The condition of taxpayers themselves can determine the size of the tax. To set taxes, every taxpayer must first find objective reasons closely connected with the state of the material. In other words the size of the tax due will be strongly influenced by the condition of the

24 taxpayer, such as the status of the taxpayer whether he is married or not, his family structure and the number of other dependents. b. Objectives tax, first it seen from the object either in the form of thing, or can also be the situation, actions, or events that result in an obligation to pay, and after that look for the subject directly, without questioning whether he lives in Indonesia or not. Such as the cigarette tax, regardless of whether the subject is rich, poor, single or married, those who consume cigarettes will be charged on cigarettes. So basically the purpose of classifying the tax by its nature is to know or understand who would be categorized as a tax subject. In this case the entire population of a country has been categorized as a subject of taxation. Then it can be determined the object of tax which must be imposed on the tax subject. To understand more easily about the subject and object in taxes, we can take the example of income tax. Basically any person or corporate body domiciles or locates in a country is eligible to be categorized as a subject of taxation. The one that must be charged a tax is every people or company that has fulfilled the requirements as a tax payer. He has already got an income. It can be concluded that the tax subject is people or company in that country, and the tax object is the amount of income received or got by people or company. 3) According to the institutions that collect the tax, there are two kinds of taxes, those are State Tax and Local Tax. Both of these institutions have different roles in collecting taxes. But both taxes are still interconnected. State Tax provides most of tax-acquired and given to the Local Tax. While

25 the Local Tax uses tax obtained to meet the needs or expenses incurred in his region. Here is the definition about State Tax and Local Tax. a. State Tax also called the Tax Center is the tax collected by the central government where the implementation is carried out by the finance department and the results will be used to finance home country. The examples of taxes that are categorized as central taxes are Income Tax, Value Added Tax and Sales Tax on Luxury Goods, and Stamp Duty. b. Local Tax is the tax which has been administered and collected by local government and used to fund household spending areas. Local taxes consists of: a) Provincial tax (Regional Tax Level I), for example: Motor Vehicle Tax and Vehicle Over Water, Motor Vehicle Fuel Tax. b) District or City Taxes (Tax District Level II), for example: Hotel tax, restaurant tax, Entertainment Tax, Advertisement Tax, Street Lighting Tax, Tax on Metals and minerals not on rock, Parking Tax, Groundwater tax, swallow's nests Tax, Land Tax on Building Rural and Urban, Customs Acquisition Rights to Land and Buildings. The purpose of the classification on the local tax and central tax is to avoid tax collection errors made by the central and local governments. By understanding the classification about which taxes can be classified as central taxes and which taxes can be categorized as local taxes, the central government and local

26 governments can understand about the authority of each in performing tax collection Tax Collection In the way of collecting the tax, there is a term "stelsel tax" that has been determined by the tax law. Stelsel tax is a method used in determining the tax to taxpayers. This has been specified in the tax laws to facilitate the tax officers in applying the tax to the taxpayer. The following is more detailed explanation of each stelsel tax. a. Real Stelsel In real stelsel, taxation is based on the real object or income acquired by the taxpayer. Thus the tax can only be levied after the end of the tax year after it gained real income. b. Fictive Stelsel In this stelsel, taxation is based on an assumption, and the assumption is dependent on legislation. There are times when the income of a year is considered the same as income in the previous year, so that at the beginning of the tax year the tax payer will be able to set the amount of tax due for the taxable year which is still in progress. c. Mix Stelsel Mix stelsel is a combination of real and fictive stelsel. On this stelsel, taxation is performed at the beginning and end of the year. The taxation at the beginning of the tax year is based on an assumption,

27 whereas the taxation at the end of the year taxes is levied by the fact object or income. When the tax at the end of the year or by the fact is larger than the tax under the assumption, the taxpayer must pay the tax deficiency (commonly referred to as tax underpayments). Otherwise if in fact if it is smaller than the assumption, that taxpayer will receive a tax refund (commonly referred to as tax overpayment). In Indonesia, the application of stelsel is basically uses real stelsel. But in practice, it applies mix stelsel. At the beginning of the year, the government implements fictive stelsel (every taxpayer has determined the amount of taxes based on the tax year, then payments are made in installments in each month during the year). Then at the end of the year, the government implements real stelsel by calculating the amount of tax on every taxpayer in accordance with the income or the actual object System of Tax Collection The tax law has set what systems are used in tax collection. It is aimed to facilitate every taxpayer in the tax report. Basically, the system of tax collection has been divided into 4 kinds of systems. Those are official assessment system, semi self-assessment system, full self assessment system, and withholding system. the following is more detailed explanation of the meaning and function of each system. a. Official Assessment System A tax collection system, in which the authority determines the amount of tax payable by a taxpayer based on tax collectors (the tax

28 authorities). In this system, the public or taxpayers are passive waiting for assessment, from tax officials or tax collectors. ew tax debt can arise when tax assessments are issued by the tax collector to each taxpayer. b. Semi Self-assessment System A tax collection system in which the authority to determine the amount of tax payable by the person or the taxpayer based on the two parties, taxpayers and tax collectors. With this system, at the beginning of the tax year, taxpayers themselves determine or interpret the large amount of tax payable. And based on the amount of the tax, every taxpayer must pay monthly installments during the year. While at the end of the year, the large amount of tax payable is determined by the government. Thus if the amount of the tax determined by the government is greater than the amount of tax determined by the taxpayer, the taxpayer must pay the tax deficiency. But if the amount of tax determined by the government is less than the tax determined by the taxpayer, the taxpayer will receive a refund of the excess tax. c. Full Self-Assessment System A tax collection system in which the authority determines the amount of tax payable by the person or the taxpayer based on the person himself. In this system, a taxpayer must be active in taking into account, depositing and reporting his own tax returns. Tax authorities

29 do not intervene in determining the amount of tax due (unless the taxpayer violates the rules set). d. Withholding System This system is a system of tax collecting authority for a third party to cut or collect the amount of tax payable by the taxpayer. The third party is a party that is not from taxpayers or the tax authorities. The application of withholding tax system in Indonesia as stipulated in Act o. 7 of 1983 on Income Tax as amended by Act o. 36 of 2008, is not only limited on income from work (employment income) such as salaries and wages (income Tax Article 21); income from capital (passive income) such as dividends, interest, rents and royalties (tax article 23 and 26), but also extended to the income from the business (bussines income). In fact, the transaction is not income, such as payments to government agencies and import or in certain business activities (PPh Article 22). Settings on the types of income and subject to withholding tax transactions that are not entirely governed by the Income Tax Laws, but many of which are delegated to government regulations, The Minister of Finance and The Director General of Taxes. In terms of tax collection system, Indonesia has undergone several changes in the application of it. Up to the year 1967, Indonesia implemented a system of official assessment. In this system, at the beginning of the tax year, the government issued a "Surat Ketetapan Pajak Sementara" which was addressed to

30 every taxpayer. Whereas at the end of the year, the government issued a "Surat Ketetapan Pajak Rampung" that was aimed to inform the actual amount of tax payable. This system was changed in accordance with the tax reform that occurred in Government changed the use of the official assessment system become self-assessment system. The Reason why the government changed the tax system was the costs incurred by the government to implement the official assessment system was very great. Therefore, Indonesian government changed tax systems by using the self-assessment system, in which every taxpayer must be more active in reporting tax. Self-assessment system is still used as a tax collection system in Indonesia until now The Principle of Tax Collection Essentially in performing tax collection, government must base on the principles of taxation contained in the tax laws. It is aimed to determine whether someone can be classified as a person who can be taxed or not. In tax law, the principles of tax collection have been divided into three kinds, those are the principle of domicile, the principle of the source, and the principle of nationality. a. The Principle of Domicile Countries where taxpayers live, has the right to tax on all income received by the taxpayers. Anyone who resides in Indonesia will be taxed on any income earned in Indonesia as well as those obtained from outside of Indonesia.

31 b. The Principle of The Source Taxation by the government to every taxpayer depends on the source from the country (Indonesia). Anyone who receives income from the state of Indonesia will be taxed on the income earned. The tax will be applied to taxpayers who live in Indonesia as well as those reside abroad. c. The Principle of ationality This principle connects taxation with the nationality of a country, where every stranger who works or resides in Indonesia may be taxed by the state. From the three principles of the tax collection that have been described above, it can be concluded that everyone either Indonesian citizens or foreign citizens may be taxed, if they live and get income from Indonesia. This has been stated in the tax laws and every taxpayer will have to comply with the prescribed rules Local Government Indonesia is a country whose territory is divided into provincial areas. The province was subdivided over the area of the District and the City. Each of the provinces, districts, cities and regions has a local government that is regulated by law. Local Government organizes the affairs of its own Local Government and the Parliament, in accordance with the principles of autonomy and the duty of assistance to the principle of autonomy in the system and the principle of the Republic of Indonesia as defined in the 1945 Constitution. According to the

32 Constitution of the Republic of Indonesia in his explanation about the local government authority, Local Government has the rights to control and manage its own affairs in accordance with the principles of autonomy and assistance tasks. It is aimed to accelerate the realization of public welfare. Besides, through autonomy, the region is expected to increase competitiveness with the principles of democracy, equality, justice, privilege, and specificity. The relationship of authority between the central government and the local government (district and city) or between provinces and districts, is governed by law with respect to specificity and diversity of the region. Financial relations, public services, utilization of natural resources and other resources between the central and local governments are fairly and equitably set up and implemented under the law. So eventhough the central government and local governments have the duty and authority to manage their respective governments, both of them still have a close relationship in managing finance and development which is aimed for the sake of nation improvement. Batu City, which is one icon of city tourism in Indonesia, participates in promoting the development of the ation. Local government that works well is a major factor in the success of the development performed in Batu City. By using all of the resources as income sources whether they are derived from natural resources or human resources. It will help to reduce the unemployment rate in Batu City. Besides, the support from the central government to reward the success of the development that has been done by the government of Batu City, motivates each element of the government and the communities to further enhance the

33 development of Batu City. This is one example of the role of local government as a supporting factor for the success of the country's development. But in the process to achieve a development that has been established, each local government in Indonesia requires substantial funds. Sources of revenue can be derived from the source of Local revenue and income is derived from the funds allocated by the central government to local government (state budget). a. Local Revenue Local Revenue based on Laws o 37 of 2004 consist of local revenues from the sector of local taxes, levies, local owned company income, the results of the natural wealth which are separated, and from other legitimate income. The law also states that the Regional Government has the authority to fund the implementation of regional autonomy in accordance with the potential of the area as a form of decentralization. This proves that the financial resource areas have been governed by the basic laws, and each local government has broad authority to regulate and manage local revenue sources in order to improve the welfare of society. b. Other Resources Other derived resources come from the fund allocated by the government. That fund comes from the state budget revenue (ational Budget) allocated to fund local needs in the context of decentralization. Source of fund balance is derived from all sources of income that are

34 managed by the central government and distributed to each region according to the budget that is determined in each region Local Tax A country's development should be done by all components within the country. Development is not necessarily the responsibility of the central government, but the role of local government in each region to participate in the development. Development of a country can be said to be successful if the welfare of the people has been achieved across the country. ot only for people in big cities but also throughout the region, whether it's just a small town and outlying villages within the country. Welfare is that every community can feel major facilities, such as ease of transportation, adequate educational facilities, hospitals or health centers that can support public health, job opportunities for the whole community, as well as convenience for the community to meet their daily needs. Therefore the role of the central government and local governments is essential for the sustainability of the country's development. Because as we know, the development of a country should be done evenly Indonesia is an archipelago that consists of several hundred regions, so the role of each local government in promoting the development in each region is very influential. Therefore the support and assistance from the central government to local government in promoting development in each area is needed, and so is intertwined relationship between the central government and local governments for the creation of the welfare of all people in the country.

35 To achieve the development goals of the country, each local government require substantial funds. Local government funding comes from local revenue sources and allocation of funds from the central government. One source of local government funding is very large is derived from local taxes. Local Tax which is one of local revenue is very influential for the development of the area. Because local tax gives a huge income for the Government, whenever it is correctly managed and executed. Besides, local tax sources also come from various fields such as transportation, society, tourism and others. These terms are explained in the Local Tax Law that has been set by the government. Based on Law o. 34 of 2004 Article 1 paragraph 6, local tax is obligatory contribution made by The Local Government to an individual or company without direct reward, which can be enforced by The Laws. This Local Tax then can be used to finance the routine expenditure needed by local government and it is also used for its regional development. Thus, the local tax is a tax set by local governments with local regulations, that has the authority to change the local tax and the results are used to finance government expenditures in carrying out the implementation of the government and development in its region. Because local governments in Indonesia are divided into two, namely the provincial and district governments or cities, so they are given the authority to implement their own regional autonomy. Therefore the local tax in Indonesia is divided into two, namely provinces taxes and county or city taxes.

36 2.1.4 Tax Compliance Tax role for the development of a country is very important, especially for countries like Indonesia that relies heavily on taxes as a source of state revenue. Therefore, the government of Indonesia tries to improve services in the area of tax. With the aim that the level of tax compliance in paying taxes can be increased to understanding the tax compliance can be taken from two points of view, one is from the point of view done by the taxpayer and the other is done by the government itself. From the government s point of view tax compliance is the condition where every taxpayer must report his tax in accordance with the time specified and has no tax arrears of more than two years. Beside that taxpayers never convicted of a crime related to taxes. While from the taxpayer s point view, tax compliance is the desire of taxpayers voluntarily without coercion to report and pay the taxes that have become his responsibility. Besides, the taxpayer must report the tax in accordance with the actual conditions of the tax object. Basically there are several factors that can affect tax compliance in paying taxes, those factors are: a. Tax Laws Indonesia is a country of law. It has set and established a wide range of laws that is aimed to make all of its citizens avoid actions that can lead to a negative impact towards society or the state. One of the laws that have been set by the government is a tax laws. Tax laws are the basic guidelines

37 used by tax authorities to carry out the process of taxation in the country. In the tax laws was set all the processes related to taxation, such as the degree or percentage of tax on a tax object, the procedure performed in tax collection by tax authorities, classification on factions tax, tax functions for the government, sanctions and fines received by the taxpayers if they violate, and many other rules relating to taxation have already been set in the tax laws. When the tax laws are clear and explicit, it can help the tax officials in carrying out the process of taxation so as to achieve the intended purpose. b. Tax Education or Tax Extension In order to increase government revenue sources from the tax, the government has been trying their best to improve the service tax. One form of service tax is the tax extension done by the tax officers. Tax extension is a tool provided for all taxpayers, the tax officer will provide more detailed information about the functions, benefits and penalties of the tax. Tax officers will conduct a tax seminar held in every district throughout Indonesia, which is aimed to increase knowledge about taxes for all taxpayers. So there will be no error information which causes the tax payers avoid in paying their tax. Besides, tax counseling is also aimed to provide information to all taxpayers about the importance of taxes for the country's development. So that taxpayers are aware that the country's development is not only the duty of the central government and local government, but the public also takes part in the country's development.

38 According to Rizky (2011), giving the tax education is an action taken by the government by means of maximizing the performance of the tax officers to do an activity together with the taxpayer, which is aimed to provide an explanation and knowledge of tax laws and tax system in Indonesia. The main objective of this activity is to make all of tax payers not only realize the importance of taxes for the ongoing development of the country, but also teach them to take part in building the country. c. Financial Condition All residents or people who work and live in Indonesia are the subject of taxes. But they can t be said as tax payers if they do not get income from the country where they live. Therefore someone can be called as a taxpayer, if he works and earns a living in this country. Income derived from that person is called the object tax. The subject of the tax is not only individuals, but also a body corporate (private companies). Every subject of taxes that have object tax requirements can be referred to as a taxpayer. Every taxpayer will be taxed according to the amount of income earned (according to the financial Condition). Financial conditions greatly affect the size of the tax imposed. According to Saraswati (2012), financial condition is reflected on the company's financial ability in the level of profitability and cash flow. The profitability of the company (firm profitability) has proved to be one of the factors that influences tax payers compliance in paying tax because tax can reduce the company s profit. Based on research conducted by ovita (2010), companies with high

39 profitability tend to report their taxes honestly than companies with low profitability. d. Tax Sanction As it is explained earlier, the government has made laws relating to taxation, that is tax laws. In the tax laws, there are regulatory sanctions and fines that will be received by the taxpayer if he violates the law. Tax payers are liable to criminal penalty if they are against the tax laws that can harm the state and liable to get administrative penalty if they penalties commit minor tax offenses. The purposes of the penalty tax are to regulate and curb every taxpayer to adhere to the tax. So that every tax payer will not take any actions which can harm people and the country for example by avoiding to pay tax, making tax document forgery, counterfeiting tax reports, and other actions that have a negative impact. According to Rizky (2011), a penalty tax is a tool used by the government to prevent tax violations made by the taxpayer and it is also used as a means to impose penalties in the form of criminal sanctions and administrative penalties on taxpayers who have committed tax violation. Penalties in the form of criminal sanctions will be given to the taxpayers who have convicted serious violations related to the level of taxation. A high rate violation is violation that can harm people and countries with sizeable amount. Whereas administrative penalties will be given to taxpayer who fails to perform tax reporting, the sanctions for this tax payers is paying additional