Management based on Results and the Measurement of Performance in Tax Administrations (Indonesian Tax Administration) Hartoyo, Catur Rini, Fery Corly I. Introduction Countries across the world are under pressure to reform the policies and practices of their public sectors. A Results-Based Management (RBM) system is a powerful tool that can be used to help policy-makers and decision makers track progress and demonstrate the impact of a given policy, program or project. The RBM system across the world has been triggered by the growing concerns and pressure from both internal and external stakeholders for governments to provide more tangible and demonstrable results. Tax revenue has a very important meaning to finance the continuity of the State. Acceptance of the target set out in the state budget, required to finance development activities in the state, so it is imperative to be achieved. Authority and collector of taxes need to have a strategic plan and measurement of performance in order to achieve the expected results. This paper describes and explains management used by the directorate general of taxes (DGT) in the short-term and medium term as well as what approaches are used to measure performance. II. Literature Review According to the flow, there are six kinds of classifications of management, namely: classical, behavioral, scientific management, system analysis, quality management, and management by results.(wikipedia Indonesia, Nov 18, 2013). The OECD defines Resultsbased Management as A management strategy focusing on performance and achievement of outputs, outcomes and impacts. 1 The United Nations Development Group has adopted a comprehensive definition of results-based management. RBM is a management strategy by which all actors, contributing directly or indirectly to achieving a set of results, ensure that their processes, products and services contribute to the achievement of desired results (outputs, outcomes and higher level goals or impact). The actors in turn use the information and evidence on actual results to inform decision-making on the design, resourcing and delivery of programmes and activities as well as for accountability and reporting. 2 Mazous (2012) states that management by results (MBR), or results-based management (RBM), is a government performance management framework with three logically linked focuses: the quality of public services, the optimization of available means and resources, and the accountability of public sector managers. 1 Organization for Economic Cooperation and Development (OECD). 2010. Glossary of Evaluation and Results Based Management (RBM) Terms, OECD, 2010 edition. p.34. 2 United Nations Development Group (UNDG). 2011. Results-based Management Handbook: Harmonizing RBM concept and approaches for improved development results at country level. UNDG, edited October 2011. p.10. 1
Source: Mazouz and Leclerc, 2008 Figure 1: The three focuses of management by results Mayne (2007) drawing on global experiences of a variety of organizations identified six principles for effective results-based management regimes. He provides a summary of these six principles that are widely referenced in results-based management literature. Six principles for effective results-based management regimes are: Principle 1: Foster senior-level leadership in results-based management. Principle 2: Promote and support a results culture. Principle 3: Build results frameworks with ownership at all levels. Principle 4: Measure sensibly and develop user-friendly results-based management information systems. Principle 5: Use results information for learning and managing, as well as for reporting and accountability. Principle 6: Build an adaptive results-based management regime through regular review and update. Mayne s six principles provide useful markers for reviewing results-based management within the United Nations development system and served as the basis for developing a results chain to guide this study. 2
Table 1 Results chain for progress with results-based management in the United Nations development system Impact/Goal Improved performance of the UN development system: organizational and development effectiveness Enhanced transparency and accountability Outcome RBM is institutionalized - Results are used for decision-making, learning, improving performance and accountability at all levels Output UN development system has the technical capacity and systems to implement RBM Results reports produced Evaluation reports produced Activities Agencies receive training, tools, guidelines and technical support Dissemination of good examples and lessons learned, quality assurance Senior management provides enabling environment for RBM Inputs Conceptual frameworks for RBM Human and financial resources, and systems for RBM Incentives for RBM III. DGT Strategic Plan The implementation could be explained in two stages; short-term, medium-term and long-term. In this study, we focus for short-term and medium-term. Short-term program began in 2009 through 2014, while the medium-term starting in 2015 up to 2020 A. Short-term Strategic Plan Since 2009, Indonesian Directorate General of Taxes (DGT) has implemented a strategic plan for period 2009 2014. The strategy map contains four s i.e. stakeholder, costumer, internal business process and learning & growth s. Stakeholder consists of society, parliament and government, whereas costumer consists of tax payers. Internal business process consists of policy formulation, service and supervision and law enforcement. Finally, learning and growth consists of human resource, organization, information technology, and budget. The strategy map including vision, mission and values can be detailed as below. 3
Table 2 DGT Strategic Map 2009-2014 Stakeholder Customer Internal business process Learning & growth Communities, Parliament, and Government Tax payers Policy formulation Service Supervision and law enforcement Human resource Organization Information technology Budget Optimal State Tax Revenue, High Trust from the Community. The level of Taxpayer Satisfaction on service is high, The level of tax compliance is high. Increasing the effectiveness of making and perfecting regulations on taxation. Improving quality of service, Increasing the effectiveness of outreach and public relations. Increasing potential exploration based on mapping, profile and benchmark, Increasing the effectiveness of auditing, Optimizing tax debt collection, Increasing the effectiveness of the investigation. Formation of highly competent human resources, Structuring reliable organization, Realizing of the integrated ICT, Optimal Budget Management. Vision Being a government institution as the best collector of state taxes in South East Asia region. Mission Perform the functions of tax administration by implementing the taxation laws equally in order to finance the administration of the state for the welfare of the communities Value Integrity, Professionalism, Synergy, Service, Excellence Source: DGT, Indonesia 2010 B. Medium-term Strategic Plan and New Initiatives Medium-term program will start from 2015 through to 2020. During this period the tax authorities will face many obstacles and challenges. Constraints and challenges include: 1. Tax ratio will drop due to inadequate capacity, 2. Fraud will reach new high, 3. Corruption and reputation will be worst, 4. Ease of doing business ranking will drop compared to other neighboring countries. Without sufficient investment in DGT capabilities in the next few years, DGT may not achieve the plans set out in the state budget. Without investing in new capabilities, DGT can only collect maximum of 13% more tax revenue per year leveraging economic growth, and won t able to reach the Tax ratio target. DGT will collect twice (2x) of tax revenue in 6 years, starting to implement initiatives by 2015. 4
Tax revenue (IDR Trillion) Tax Revenue 1,2,3 Comparison (in IDR Trillion) Tax Revenue/ GDP Percentage 4.000 11,2% 12,0% 3.500 3.000 2.500 7,7% 7,7% 8,7% 8,5% 8,0% 7,9% 8,1% 8,4% 9,2% 9,8% 2.178 10,3% 2.634 3.288 10,0% 8,0% 2.000 1.784 6,0% 1.500 1.000 500 0 1.430 1.696 1.177 1.542 995 1.402 873 1.274 1.158 1.053 957 870 719 791 596,9 501,4 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 4,0% 2,0% 0,0% 3 Tax Revenue Scope: - Individuals Income Tax - Company Income Tax - VAT Tax Revenue (Without Initiatives) Tax Revenue (With Initiatives) Tax Ratio Source: International Monetary Fund, World Economic Outlook Database, October 2012 Notes: 1 Tax Revenue without initiatives is calculated based on 10% annual tax growth rate from 2007-2012 2 Tax Revenue with initiatives is calculated based on financial benefit gain per year considering the average 15% economic gro wth rate ((inflation rate and population growth)) Figure 2 Tax Revenue With or Without Initiatives The investment initiatives consist of a minimum of 6 items as detailed below. 1. Single Taxpayer Register 2. Simpler Easier Return Processing 3. Easy Electronic Payments 4. Centralized Accounting and Collection 5. e-tax invoice for Value Added Tax 6. Intelligence Led Audits and Compliance. IV. Result Based Management and Measurement of Performance A. Implementation of RBM DGT has not implemented directly Result Based Management (RBM). In my view, the strategic plan implemented since 2009 has similar process as RBM. We can adjust the 2009-2014 strategic plan to RBM process as described in table 2. 5
Table 3 RBM for Indonesian DG Tax 2009-2014 Impact/Goal Improved performance through optimal tax revenue : organizational and development effectiveness Enhanced transparency and accountability: for stakeholder; communities, parliament and government. Outcome Optimal state tax revenue, High trust from community. Output The level of taxpayer satisfaction on service is high, The level of tax compliance is high. Activities 1. Increasing the effectiveness of making and perfecting regulations on taxation. 2. Improving quality of service, 3. Increasing the effectiveness of outreach and public relations. 4. Increasing potential exploration based on mapping, profile and benchmark, 5. Increasing the effectiveness of auditing, 6. Optimizing tax debt collection, 7. Increasing the effectiveness of the investigation Inputs 1. Formation of highly competent human resources, 2. Structuring reliable organization, 3. Realizing of the integrated ICT, 4. Optimal budget management. B. Measurement of Performance Starting 2009, Ministry of Finance (MOF) has already implemented balance scorecard. Director General of Taxes as Top Manager, all heads of regional offices as middle managers, and all heads of local offices across of country as low managers, and all employees have and focus on their Key Performance Indicators. Each level of staffs has Key Performance Indicator (KPI), called KPI one to five. Director General of Taxes has measurement of performance, KPI-one, whereas directors and heads of regional office have KPI-two. Each head of local office has KPI-three, head of section has KPI-four. The last, each employee has KPI-five. Using the balance scorecard, Director General of Taxes with KPI-one has 25 performance indicators, and the three important keys performance i.e. Tax revenue meet the state budget, Service user satisfaction index, and Tax payer compliance rate. For 2013 KPI, Director General has target tax revenue of IDR 1,042 Trillion (2012 KPI: IDR 835 Trillion), satisfaction index of 3.94 in scale of 5 (2012 KPI: 3.90), and compliance rate of 65% (2012 KPI: 53.5%). The head of regional office has 22 indicators for KPI-two, whereas the head of local office has 26 indicators for KPI-three. 6
V. Conclusion Since 2009, the Government of Indonesia, especially MOF and DGT has been focusing to implement a Balance Scorecard (BSC) system with strategic plan for each term and keys performance indicators for each level of organization. This is a contemporary management philosophy and approach which focuses on the appropriate and timely achievement of relevant goal and objectives through strategic planning, systematic implementation and resource utilization, performance monitoring, measurement and reporting as well as systematic utilization of performance information to improve policy decision-making and program performance at all levels. These include a strong human, institutional and management capacity in the public sector, a public service known as values for integrity, professionalism, synergy, services and excellent. In conjunction with the RBM and measurement of performance in DGT and Indonesian Taxation can be summarized as follows: 1. Ministry of Finance (MOF) and Directorate General of Taxes (DGT) have implemented the Balanced Scorecard (BSC), and not using the Result Based Management (RBM). It would be perfect if RBM is used as a companion of the BSC, in order to help leaders focus on results and targets to be achieved. 2. RBM easily implemented, to complement and as a means of monitoring and decision making especially in choosing activities that support the achievement of results and fulfillment of the targets that have been determined to achieve. 3. Measurement of performance for each level in the DGT has been using Key Performance Indicators (KPI), which evaluated each quarter and semester. 4. To achieve the target, especially in the medium-term and long-term, investing in initiatives is inevitable and imperative duty. Without new initiatives, growth in tax revenues will decrease drastically from 8.7% (2012) to 5.8% (2021). With the new initiative as an investment is expected to average growth of tax revenue each year will reach 8-11%. References Directorate General of Taxes (DGT). 2012. 2012-2014 Strategic Plan. Indonesian DGT, Jakarta. Kusek JZ and Rist RC. 2004. Ten Steps to A Results Based Monitoring and Evaluation System. The World Bank Washington DC. Mayne J. 2007. Best practices in Results-Based Management: A review of Experience. A report for the United Nations Secretariat, Main Report Volume 1, July (2007). Mazouz, Bachir. 2012. Management by Results. Encyclopedic Dictionary of Public Administration, Canada. Organization for Economic Cooperation and Development (OECD). 2010. Glossary of Evaluation and Results Based Management (RBM) Terms, OECD, 2010 edition. Ortiz EF, Kuyama S, Munch W, and Tang G. 2004. Implementation of Results-Based Management in the United Nations Organizations PART I, Series on managing for results in the United Nations System, Joint Inspection Unit, United Nations. United Nations Development Group (UNDG). 2011. Results-based Management Handbook: Harmonizing RBM concept and approaches for improved development results at country level. UNDG, edited October 2011. Wikipedia Indonesia, November 18, 2013. 7