The Importance of Tax Literacy Towards Tax Compliance

Since the implementation of the Self Assessment System (SAS) into the Indonesian tax system, the community plays an important role in achieving the quality of fulfillment of its tax obligations. The role refers to the activities to register as Tax Payers, calculate, recalculate, pay, and report their own tax obligations with full responsibility. The conclusion then is very simple: that in order to run well the implementation of SAS requires the Taxpayer to have a complete understanding of tax administration.

Then, how is the condition that occur in Indonesia?

Currently, people’s resistance to taxes is high. In research Fenochietto and Pessino (2013), presented the finding that Indonesian Government is only able to tax 47% of the actual capacity (tax effort). Understanding of tax (tax education) also becomes one of the determinants of the achievement of the percentage. This shows that since the SAS was implemented 33 (thirty three) years ago, Indonesia is still not optimal in building a thorough awareness into the minds of its people. There has not been a growing awareness of the importance of tax in the life of the state as it should be in order for SAS to be fully dependable. The question then is: how come?

Awareness is basically the output of a systematic and sustainable education process. Not just doing socialization and then stop. Likewise with tax awareness, knowledge of tax (knowledge of taxation) is an integral entity in the discussion of the tax system that apply SAS (Wijaya, 2016). It can only be built by making taxes as part of a well-designed educational process from an early age. The Kirchler (2001) study reveals that the United States (a country with 71% tax efforts) takes no more than 12.5 years to make the population understand the tax urgency. While in the United Kingdom (tax efforts 85%) and Australia (tax effort 73%) need longer period of time required, consecutively reaching 13 years and 17 years. Given the phenomenon in some countries, it can be seen that there is a correlation that is directly proportional between the quality of knowledge of taxation with tax awareness that is formed. This is in line with Niemrowski’s (2002) conclusion that poor understanding will trigger distrust and give rise to bad behavior towards taxes and vice versa.

Indonesia has not fully incorporated the values of tax awareness in the education system from an early age. Tax is still considered a separate case in the life of the state. So then when the students grow up and become Taxpayers, there is an attitude of distrust and reluctance to fulfill the obligation of taxation. This collective accumulation of behavior can form a tax-avoidating environment. This makes the need to run an early tax education on the more urgent. Tax education starts from the earliest level of education to internalize the values of tax urgency for development and the future of the country. That means every learning material in the education process must contain taxation values on many lines. Such material may be a narrative insert in reading text or subject matter for subjects that are not directly related to the tax. While for subjects that are directly related to taxes, such as Economics or Accounting, then there is a wider space to make tax either as a special discussion or as material in an integrated chapter.

Internalization of material and tax urgency in the education system is an entry point that must be built early to facilitate the establishment that was said by World Bank (2012) as a trustworthy relationship between taxpayers and tax officials in the future. This is possible because the chronic educational process is expected to generate good awareness to fulfill his tax obligations when a students grows into an independent and employed individual. At the same time, early education about taxes on society can also be realized by setting a day as a special momentum for people to know the tax role that is so closely related to daily life (Lutfi, 2016). This determination is for example by making certain date as National Tax Day as done in some countries such as Bangladesh (National Income Tax Day) and Rwanda (Taxpayers’ Day). These days can be filled with awareness-raising contents about the significance of taxes for the survival of this country now and in the future.

Strategy to build the education system as a place to accommodate the values of tax urgency is certainly not an easy and cheap matter. It takes time, effort, and cost. But it is much easier than convincing the Taxpayers about the absence of the direct benefits they receive from paying taxes (Herdianti, 2016). But early tax education can prevent the birth of tax-resistant communities. Let’s say this step is a kind of long-term investment that the government should take. So that later, it will create a bandwagon effect that is where Taxpayers are willing to pay taxes because they see the number of people who pay taxes. This is because basically humans are social beings whose behavior is influenced by the behavior of other individuals in the environment. Here can be concluded the existence of the significant role of early tax education as a way to form influence and positive perceptions about the urgency of taxes so that it will form the behavior of people who are aware of their obligations of taxation. Is not it something what the Self Assessment System really needs?

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