Bribery in tax audit-an exploratory study in Indonesia

Indonesia as one of the developing countries has a Tax-to-GDP ratio around 12%, which is
considered low by international standard. To a large extent, this reflects prevalent lack of
formality and tax evasion including bribery which decrease the national tax revenue. To secure government income and to increase tax revenue, tax authorities conduct tax audits which could minimize tax evasions. One of the challenges in tax audit is bribery as within this process there is a mutual benefit between tax auditors and taxpayers, which is economic benefit. Thus this study examines the factors leading to bribery in tax audit, the stakeholders’ perceptions on existing and
additional new strategies in reducing bribery in tax audit and the impact of tax reform on
reducing bribery in tax audit in Indonesia. This is a qualitative study exploring two different perspectives from tax auditors and taxpayers’ experience using in-depth interviews as the data collection method. Among the findings, are factors leading to bribery in tax audit which are: benefit, excessive power, ambiguous tax regulation, preliminary findings and direct encounter. Other findings are the suggested additional strategies to reduce bribery through additional sanctions, a reliable accounting system, increasing monitoring system, improving audit quality,
expanding the tax coverage, increasing moral consciousness, improving recruitment process and
producing consistent tax audit findings. This study presents a better perspective on how to
minimize bribery opportunity in tax audit process in Indonesia and gives some feedbacks for Indonesian government to improve the existing regulation regarding the strategies to fight bribery