The Budgetary Slack Practice in the Indonesian Taxation

Abstract

In the tax office, especially in achieving tax revenue targets, the budgetary slack practice plays an important role in increasing the tax revenue target. The performance of tax office is not effective to achieve the tax target and improve the revenue in Indonesian taxation system. The purpose of this study is to investigate the existence of budgetary slack in the context of Indonesian taxation and to find a correlation between budgetary slack and tax revenue. Even though it is rarely done, this study is also expected to be able to describe the existing budgetary slack and its role to motivate the realization of optimal tax revenues. The design of this study is quantitative through questionnaire from tax offices and civil servants from various tax offices and corresponding analysis of their respondents. The results of this study show that there is a significant negative effect of budgetary slack on tax revenues. The more budgetary slack practice occurs, the more it reduces the growth of tax revenue. This study concluded that all stakeholders in taxation use budgetary slack for motivation and control purposes and the tax authority must improve tax planning, estimates and predictions. Thus, tax offices must continue to increase their tax capacity regarding regulations, organization and governance, and human resources. The future research must include other variables besides budgetary slack that have the potential to affect tax revenues in Indonesia and must develop secondary data-based proxies to measure variables that affect tax revenues to anticipate difficulties in collecting primary data.