James Alm: Tax Reform Must Be Backed by Administrative Reform

JAKARTA, DDTCNews - Professor Emeritus of Economics at Tulane University, James Alm, has said that tax reform in any country will succeed only if it is supported by reform of the tax administration system.

In a special lecture entitled 'Central and Local Government Revenue Policies to Support Economic Growth: Linking Administration and Tax Reform', he stated that tax reform can only be implemented if the tax administration of the jurisdiction concerned is capable of carrying out the planned reforms.

"The success of a country's tax reform is determined by reform of its tax administration. If you reform the tax rules without reforming how that tax is administered, the reform will not work. You need a tax administration that can properly administer the tax reform," said Alm at the special lecture organised by the National Development Planning Agency (Badan Perencanaan Pembangunan Nasional/Bappenas in Indonesian) on Friday (2/10/2026).

Accordingly, Alm stated that every tax reform effort must be accompanied by a comprehensive reform of the administration system.

So, what steps are needed to reform tax administration? According to Alm, tax administration reform is carried out by shifting the tax compliance approach, which has long been enforcement-based, towards an approach based on service and trust.

The enforcement-based compliance paradigm views taxpayers as potential tax evaders. Under this paradigm, compliance is improved by increasing oversight and imposing severe sanctions for every violation.

The service-based compliance paradigm, meanwhile, emphasises the role of tax administration as a facilitator and service provider for taxpayers. Under this paradigm, compliance is improved by enhancing service quality and making it easier for taxpayers to pay tax.

Finally, the trust-based compliance paradigm places public trust in the government as the key to improving tax compliance. Taxpayers are willing to pay tax when the public has a high level of confidence in the government and the tax administration.

According to Alm, public trust in the government and tax administration will increase when taxpayers know that the tax they pay provides direct benefits to them.

Under this trust-based compliance paradigm, tax compliance is improved through the implementation of policies capable of improving the culture and social norms surrounding tax payment obligations.

According to Alm, tax administration reform efforts must be pursued by adhering to all three compliance paradigms. Reform on the enforcement side is pursued by increasing the number of auditors and audit activities and raising the number of registered taxpayers.

Meanwhile, reform on the service side is pursued through improvements to tax services and tax education. Reform on the trust side is pursued through improvements to public norms and perceptions regarding tax payment.

"There is compelling evidence showing that tax administration reform will be effective when it is grounded in all three paradigms. Tax administration reform demands steps that go further than mere enforcement. Reform must encompass improvements to service and trust," said Alm.

However, before pursuing tax administration reform based on the three paradigms above, the government must possess political will and prepare the strategy and resources to support such reform.

"You must have political will, you must have resources, you must have adequate resources to carry out the reform. The key lesson from tax administration reform is the need to move from merely partial strategies towards comprehensive reform that goes beyond the enforcement-based paradigm," said Alm. (dik)