Tax Education as the Foundation of Tax Compliance
TAXES cannot be collected on a sustainable basis and accepted by society merely because the state is authorised to impose such taxes. Nor can taxation be grounded solely on the premise that it is an obligation. Behind that, there is a more fundamental requirement.
That requirement relates to an understanding of why tax is needed, why its imposition requires consensus, how tax is collected and what public funds are used for. Without such understanding, taxation will continue to be regarded as a unilateral burden.
Before going too far into tax policy, regulation and administration, Indonesia faces a substantial and deeply serious challenge: how to educate the public and build foundational tax literacy across society (Darussalam, 2023).
In reality, tax contributes more than 70% of total state revenue. Yet tax remains unfamiliar to the majority of the public, even frightening, and is frequently mischaracterised within the context of national development. This is a troubling reality.
Within the self-assessment system adopted in Indonesia, tax knowledge is an absolute prerequisite for building compliance. This system can only function optimally if a foundational level of public literacy has been established (Darussalam, 2019).
Without solid literacy, tax can still be imposed on the basis of rules. However, it will lose its legitimacy and social acceptance by the public (Murphy, 2015). Most recently, the government's financial note and draft state budget 2027 also explicitly stated that strengthening public trust can be enhanced by reinforcing tax education.
Education, Tax Morale and Public Trust
The question is: why is tax education a fundamental requirement? A study conducted by the OECD (2019) on tax morale demonstrates that willingness to pay tax is influenced by trust in government, perceptions of corruption, the quality of administration and satisfaction with public services.
This implies that tax compliance is determined not only by the likelihood of being audited or penalised, but also by the legitimacy of the parties that collect and administer tax (OECD, 2019; Darussalam, 2020).
Sustained voluntary compliance from taxpayers cannot, in essence, be generated solely through a coercive approach comprising the threat of penalties and audits. Compliance rooted in the intrinsic motivation of citizens themselves is indispensable.
Compliance stemming from within a taxpayer is academically defined as tax morale (Torgler, 2005; World Bank, 2019). Trust in the tax authority is the primary driver of voluntary compliance. Meanwhile, authority lacking public trust will only produce coerced compliance (Kirchler, Hoelzl, and Wahl, 2008).
An OECD report (2021) further confirms that tax morale is strongly influenced, on a reciprocal basis, by the level of public satisfaction with the delivery of public services, the accountability of public expenditure and the integrity of government officers in relation to corrupt practices.
This implies that tax morale flourishes within a social and fiscal contract that is fair, transparent and integrity-driven, which cannot be formed instantaneously (OECD, 2021).
Tax education is a strategic measure that must proceed in tandem with equitable fiscal policy, legal certainty and transparent public financial management (OECD, 2021). Moreover, a tax narrative is also needed for a given tax policy to be well received by the public. In essence, tax education needs to start at an early age and be carried out consistently, continuously, and tirelessly, without expecting immediate results.
This is where tax education institutions play a critically important role; in particular, higher education institutions that administer tax study programmes, together with tax centres, serve as one of the main pillars in delivering tax education. To that end, tax policies are needed that incentivise universities and the public to develop tax knowledge as the basis for tax education.
In closing, through tax education, a tax-aware and compliant society will be established, one that voluntarily and proudly pays tax for the Indonesia we cherish.