4 Tax Functions – The term tax is not something foreign to the public’s ears. Everyone must have been taxed and paid a certain amount as a tax liability. For example, when someone is shopping for drinks at the mall, usually the cashier will explain that the total price to be paid for one glass of drink will be greater than the value listed on the menu.
This is because there is a tax imposition for the purchase of one glass of drink which is between 5% and 15% of the original price. Like it or not, everyone has to pay more to buy drinks or other goods because they have to pay taxes.
This type of tax is commonly known as Value Added Tax (VAT), which is a type of taxation form. The existence of taxation is certainly not a pleasant thing, but we also need to realize that we live in a legal country, where everyone must comply with the provisions issued by the government.
Every rule that exists is certainly made to achieve the welfare of all people. In fact, the tax system does not only apply in Indonesia, but in all countries. This is because to carry out the development of infrastructure, education, health and others, the government needs funds.
If the state can be likened to a vehicle, then taxes are its fuel, because the state can carry out every function if there is funding, and one of its main sources comes from tax collection.
Definition of Tax
The definition of tax is based on the Big Indonesian Dictionary (KBBI), in the form of a mandatory levy, usually in the form of money that must be paid by residents as a mandatory contribution to the state or government in relation to income, ownership, purchase price of goods and so on.
Based on the law (UU) on taxation, namely Law Number 16 of 2009 concerning General Provisions and Procedures for Taxation, taxes are understood as, “compulsory contributions to the state owed by individuals or entities that are coercive under law, by not getting compensation directly and used for the needs of the state for the greatest prosperity of the people.
In this regulation, the government can impose taxes by first submitting the new tax provisions to the House of Representatives (DPR). The government plays a role as a policy formulator, then its implementation can only be done if it has obtained approval from the DPR RI.
Based on historical texts, tax provisions actually existed several centuries ago. The idea of setting taxes departs from the English royal charter known as the ‘Magna Carta’ which was issued in 1215.
This charter provides evidence that at that time the King of England was allowed to withdraw income from the people with the consent of the nobility. However, in the context of a democratic country, the implementation of this tax collection is carried out based on the approval of the people represented by the presence of parliament or the DPR.
Furthermore, a number of experts also define taxes. Djajadiningrat defines tax as an obligation of a person or business entity to submit money or their funds in a certain amount to be put into the state treasury which is affected by certain conditions, events or actions.
This obligation is not interpreted as a punishment, but its nature is coercive for every taxpayer. In addition, the taxpayer who has deposited the funds has no right to receive compensation directly, but the funds will be used to achieve people’s welfare in general.
Based on the definition described above, tax can be interpreted as an obligation that must be fulfilled by taxpayers (can be individuals or business entities ) to deposit funds with the government with conditions and amounts regulated by the state. The output of this tax cannot be felt directly and personally, but its impact is universal, aka it will be felt by everyone through the accelerated development of the country.
Functions and Taxes in State Development
Theoretically, the existence of a tax system has a number of important functions in a country, especially to achieve development targets. The role is carried out, among others, as follows:
1. Budgeting Function
The government of a country certainly has a development plan that is actualized in short-term plans and long-term plans. The implementation and realization of the plan also requires a number of components, one of which is related to where the funding sources for the plan are obtained.
Like when a businessman wants to launch his business, they must think about how they can get capital so that their business can be achieved. Likewise with the government, they certainly need funding sources that they cannot create themselves.
This source of funding then gave birth to the idea to collect taxes from the public. Like Abraham Lincoln’s idea of democracy, taxes are obtained from the people, managed and supervised by the people and the output will be felt by the people themselves. Therefore, tax collection is an ideal step to involve the people in the country’s development.
The function of the budget in taxes helps explain that taxes are used by the government to fill slots in funding sources in the state budget. The budget prepared by the government is what many of us know as the state revenue and expenditure budget (APBN).
The government annually draws up a framework for the APBN for a period of one year. In the APBN there are a number of components, there are what are referred to as income, expenditure and financing. Taxes that carry out the function of the budget enter into the income component. Tax collection helps meet state revenues in the APBN budget.
In its realization, income from taxes is used to meet the needs of the state spending component. However, in its implementation so far, tax revenues have not always been successful in meeting spending needs. Simply put, tax revenues are insufficient to finance government spending needs.
Therefore, within the state revenue component, taxes are not the only source of state revenue, but there are also grants to non-tax state income (PNBP). It’s just that, taxes are indeed the main foundation that takes up the largest portion of state revenue.
The government prepares the APBN budget every year, therefore the government also simultaneously sets revenue, spending and financing targets in a year. This means that the government will usually set its tax revenue target within a year.
To be able to achieve the target value of tax revenue, the government has implemented a number of tax provisions that allow the government to collect taxes from various sources, ranging from business activities, ownership of goods and others.
2. Regulating Function (Regulated)
Tax has a very close relationship with state affairs related to revenue and state treasury, therefore, tax affairs are also included in the fiscal policy category in the concept of the state economy. The fiscal policy itself is simply interpreted as steps issued by the government in the context of managing the state treasury, including income, spending and financing in the APBN posture.
Fiscal policy is government policy regarding economic affairs related to the management of the state budget. Thus, when the government issues new regulations related to taxation, both adding to the list of tax objects and providing tax incentives, this is included in the government’s fiscal policy. Why is that? because the policy issued will have direct or indirect effects that affect the condition of the state budget.
Taxes are used by the government to regulate how society or the public are involved in funding state development. Because it is defined as an object of regulation, the implementation of taxation is always coercive or burdens someone to fulfill their obligations.
In this case, the person or entity that is taxed is referred to as a taxpayer. The person is obliged, like it or not, like it or not, to have to pay taxes as a form of his obligation as a citizen. Likewise with entities or companies, whether they like it or not they have to pay taxes to the government, this is part of their commitment to the development of the country or a place where they get profits. So, if a person or business entity wants to get good infrastructure facilities, then they are obliged to deposit money with the government to help build infrastructure. Here’s how simple the function of taxes is as a regulatory component, especially to involve people or entities in providing state funding.
Furthermore, in order to fulfill the function of regulating taxes, the government issues tax regulations. This regulation is used as the legal basis that a person or entity is a taxpayer. The issuance of tax rules will always be updated according to certain conditions.
As it is today, in the midst of difficult economic times due to the Covid-19 pandemic, the government has issued a number of regulations that abolish value added tax (VAT) for buying new homes. This tax facility is a rule, in which a person is no longer given the obligation to pay taxes every time he buys a new house.
3. Stability Function
Taxes not only function as regulators and providers of government budgets, in a broader context the presence of the tax system is a component of achieving economic stability. In an economy, the phenomenon of significant price increases over a certain period of time is known as inflation.
If prices continue to rise or inflation occurs, it shows that the economy continues to stretch because consumers are spending more and more, but limited production keeps prices creeping up. Simply put, the demand is greater than the supply.
Conversely, when the prices of goods tend to fall, it indicates that the economy may be sluggish. Prices become cheaper because there is a surplus in production, the quantity of goods supplied is actually more than the demand. People shop less often even though there are a lot of goods offered, thus driving down prices.
Both conditions have their positive and negative sides. The government certainly cannot continue to allow prices to soar. Even though this reflects a thriving economy, prices that continue to rise will be detrimental to society because the costs incurred to buy goods are increasingly expensive.
Therefore, the government needs to control inflation so that it does not rise sharply. Conversely, if the economy continues to experience deflation, it is certainly beneficial for consumers because the prices of goods fall so that goods become cheaper, but this is not good for producers and the government.
It is becoming increasingly difficult for producers to get funding because prices are getting lower, which in turn is also increasingly difficult for the government to obtain funding sources or withdrawing taxes from business entities because their business is running sluggish and their income is decreasing. Therefore, the government also needs to regulate so that deflation does not drop sharply and keeps inflation running normally.
Some countries, such as the United States, where the prices of goods are too high, have even set a target so that inflation does not continue to rise beyond 2% annually. The way to manage inflation goes back to fiscal policy and monetary policy . The government can intervene in inflation through fiscal policy, one of which is by issuing tax rules.
When inflation is felt to be too high, the government can tighten tax rules on some goods, for example increasing the percentage of VAT for car purchases if inflation continues. Steps to increase taxes will make the cost of buying a car more expensive than before so that demand decreases which then affects the price.
Conversely, if it is felt that car prices continue to experience deflation due to small demand, the government can issue economic stimulus regulations in the form of tax subsidies, so that the VAT on cars will be lower which will push demand to increase and inflation occurs. Therefore, taxes can be used by the government to maintain the economic stability of a country, one of which is to keep inflation at a normal level.
4. Redistribution function
The state plays an important role in guaranteeing the lives of its people, especially ensuring that all groups of people from various economic strata can live securely. To achieve this, the government must manage development plans to be more pro-economically vulnerable groups. Because it relates to development, this certainly cannot be separated from the APBN component.
Simply put, to achieve prosperity for all Indonesian people, the government must be able to distribute the budget for development according to the place.
This is where the role of taxes as economic redistribution, in which the government applies taxes by taking into account aspects of the socio-economic conditions of the community. Withdrawal of taxes is prioritized from groups of people who get a large share of the economy, for example with income tax, VAT or business entity tax. Conversely, because vulnerable groups tend to have low incomes, the government provides tax amnesty so that they are not too involved in financing the country’s development.
The tax function as economic redistribution is an ideal implementation of state development. Where, taxes are implemented to meet the needs of all people. Large taxes are collected from the rich, which are then managed for development and provide assistance to the poor.
Nevertheless, the rich do not mean that they do not benefit from the imposition of the tax, because the imposition of the tax is usually accompanied by various benefits such as the granting of business licenses and others. Business entities that comply with taxes will get a good image not only from the public but also from the government. So that this indirectly benefits the business being run.