IN-DEPTH ANALYSIS

A New Chapter in Hajj Funds Corruption

Case trials of the alleged corruption of hajj pilgrimage funds management just got more interesting. During the defense rebuttal (eksepsi) hearing, defendant former Minister of Religion Suryadharma Ali implicated Abdul Kadir Karding, a National Awakening Party (PKB) politician and Chairman of Commission VIII at the House of Representatives (DPR) in 2009-2014 (31/8).

Not only Karding, Suryadharma also blurted a list of other names related to use of the national hajj quota in 2012. This include Megawati Soekarnoputri (fifth President of RI), more than 100 quota for presidential security at the office of Vice President Boediono, 50 quota for Taufiq Kiemas (late husband of Megawati), 70 quota for Defense Minister Purnomo Yusgiantoro, 10 quota for former Chairman of People’s Consultative Assembly (MPR) Amien Rais, 2 quota for prominent journalist Karni Ilyas, 6 quota for family members of Suryadharma Ali, 6 quota for the Corruption Eradication Commission (KPK), and more people from other print and electronic media.

Suryadharma elaborated that every year there are always about 1 to 2 percent of unused hajj quota made available from registrants who passed away, fallen ill, pregnant, unable to settle payments, or any other causes. He argued that distribution of unused quota does not violate any Law.

In contrast to Suryadharma, KPK prosecutors saw this as a corruption offense. In the prosecution, KPK challenged the use of remaining national quota in 2010-2012 when 1,681 out of 221,000 pilgrimage seats were distributed by the suspect as unused quota.

According to KPK prosecutors, the offense lie in Suryadharma’s decision to distribute remaining national hajj quota for pilgrims proposed by DPR, instead of distributing them to registered applicants who are stacked on the waiting list.

Mismanagement of hajj pilgrimage have long been scrutinized in public interest. Indonesia Corruption Watch (ICW) have repeatedly submitted their findings to KPK as well as related ministries, from the alleged mismanagement of hajj funds in 2008, to findings about mark-up in hajj expenses.

Prior to naming Suryadharma Ali as a suspect, KPK had already conducted a research on the hajj pilgrimage administration system. In their research, KPK found 48 vulnerable areas in hajj management covering many aspects, including regulation, institution, operation, human resources management, and pilgrims health management.

For the record, Suryadharma was not the first suspect named in the hajj case. Previously, former Minister of Religion Said Agil was also indicted with corruption. On February 7, 2006, he was sentenced by Central Jakarta Court after proven to have been involved in corruption of Hajj Pilgrimage Management Fee (BPIH) and the Ummah Endowment Fund (DAU) in 2002-2004.

Upon observation of these facts, there are several recommended actions that the government can take. Firstly, a reform on management of hajj pilgrimage shall be a priority for the government, in this case Ministry of Religion, as well as the parliament. This reform should focus particularly on separation of authority between supervision, regulation and operation in hajj management system.

Second, to fix a standard component of hajj fees for pilgrims, therefore unburdening pilgrims from unaccountable fees unrelated to their pilgrimage.

Three, to implement a standard on minimum service quality in hajj pilgrimage management and provide a service complaint mechanism. Management of hajj pilgrimage should not be seen only as a religious ritual, but also part of the state’s obligation to serve the people.

Four, to put in place a mechanism for transparency and accountability in management of hajj pilgrimage, particularly implementation of the e-hajj system. This include management of initial deposit, waiting list, interest fee, cost breakdown and components to be paid by pilgrims.

And fifth, to create a proper internal and external monitoring system in order to guarantee a better management of hajj pilgrimage. The time has come to involve the public – especially hajj applicants and pilgrims as the most important stakeholder – in management of hajj pilgrimage.***

Tax Incentive: A Paradox in Target of Tax Revenue

Since the early days of his administration, President Joko Widodo (Jokowi) and his cabinet were highly aggressive in producing tax-related policies, from tax amnesty to the new tax holiday. Both facilities are forms of tax incentive and considered as common practice widely-used in various countries. Nonetheless, if preconditions to such policy are not well-prepared, it will only backfire, rather than boost revenue stream.

The government recently extended the incentive term for tax holiday from ten to twenty years. Moreover, in order to trim down bureaucracy, an application which used to require the President's stamp, now only needs approval from the Minister of Finance. This policy was designed to attract foreign investment in Indonesia, luring investors with a 20-year tax holiday.

This policy was immediately apparent as paradox to this administrations' target for 2015 tax revenue, which amounted to Rp 1,291 trillion – that's 31% higher than 2014's target. Referring to OECD (2014), a tax holiday would actually result in potential loss of state revenue at around 0.5% of the Gross Domestic Product (GDP). Indisputably, this policy would make it impossible for the government to achieve the target of 16% tax-ratio as proclaimed by Jokowi's Nawacita priority agenda.

Indonesia had an experience in implementing a tax holiday, but the results were far from expectations. When the policy was enforced in the 1970s, it did not produce significant results, considering the amount of incoming investments at the time. Peculiarly, there were better investments after the policy was revoked in 1984 (Nainggolan, 2004). The government's argument that tax holiday would improve investment was already refuted with research by Banga (2003) and Dewi (2012) which concluded that a tax holiday policy or any other form of tax incentive does not provide any significant contribution to improve Foreign Direct Investment (FDI).

On the other hand, a tax holiday is prone to abuse by mischievous companies to evade taxes. Such companies would make new subsidiaries merely to benefit from this policy. The chances of such schemes happening will only increase when the taxing systems and administration are weak and the apparatus are unprepared. In the meantime, corporations are already a thousand steps ahead in preparing and identifying policy gaps that they can capitalize on to evade tax obligations.

Jokowi's administration need to understand that taxes in not the decisive factor to influence investments. In fact, the obstructive factors in attracting foreign investments to enter Indonesia are other factors, particularly complex bureaucracy process, rampant corruption and poor infrastructures. Even without a tax holiday facility, Indonesia is already an attractive target for investment. Prudent investors would not overlook a country that have the fourth largest population, enormous consumption level, relatively stable economic growth, and abundance of natural resources.***

WEEKLY SUMMARY

Monday, September 7, 2015

• The new Head of the Police Criminal Investigation Unit (Bareskrim) was called to openly review cases involving experts and criminal law practitioners.

• Criminal arrest proficiency is not the benchmark of law enforcement achievements, but with progressive legal measures which result in improvement of social order as well as internal betterment within the implicated institutions.

• Indonesia Corruption Watch (ICW) remarked that under the leadership of the outgoing Budi Waseso, Bareskrim did not excel at handling corruption cases. Not many cases processed during Waseso’s tenure were raised to prosecution.

Tuesday, September 8, 2015

• ICW pointed out seven urgent homeworks for the new Kabareskrim to resolve, including cases against anti-corruption activists; focusing high-profile corruption cases instead of immaterial cases like defamation; improving inter-institution communication between law enforcement agencies in handling corruption cases; strengthening supervision in handling regional cases; empowering the Corruption Crimes (Tipikor) Directorate at the Police HQ; restoring the stature and public confidence in the Police Force; and stopping police actions that go against the President’s policies.

• The Attorney General Commission began investigation on alleged manipulation of prosecution of suspect Zulfahmi Arsad by the Attorney General Office of Central Jakarta against inactive Deputy Chairman of the Corruption Eradication Commission (KPK), Bambang Widjojanto.

• Parliamentarian from Commission II in DPR, Arteria Dahlan, remarked that money politics has become common practice in electoral contests.

Wednesday, September 9, 2015

• Commission VIII of DPR which focused in religious issues played down accusations thrown by former Minister of Religion and suspect in corruption of hajj funds in the ministry. Suryadharma Ali (SDA), that Megawati Soekarnoputri and Amien Rais also benefit from the government’s hajj quota reservation.

Thursday, September 10, 2015

• The Attorney General Commission commenced investigation of a ruling by Attorney General Office in the case against Zulfahmi Arsyad, yet failed to mention Bambang Widjojanto.

• Despite handover in handling of the case implicating PT Pelindo II from the Special Economic Crimes Directorate to the Corruption Crimes Directorate, Bareskrim will continue investigation on the case.

• Corruptions even more rampant. A comprehensive study is necessary to determine the most effective direction in tackling lack of disgrace and deterrent effect in implication of corruption.

• The Supreme Attorney General (Kejagung) insisted that administrative offenses are not part of corruption crimes.

• DPR Special Committee on corruption at PT Pelindo II to involve three commissions.

Friday, September 11, 2015

• Coordinating Minister on Maritime, Rizal Ramli, again criticized government programs related to PT Pertamina (Persero). Previously, Rizal had scathed government plans in construction of 35,000 watt power plants.

• Legal practitioner Abdul Fickar Hadjar recorded a phenomenon of unusual pretrial verdicts and shifting function of pretrial hearing after the announcement of verdict that annulled the naming of regent and former regent of Bengkulu as suspects in the alleged misuse of social aid fund in 2012-2013.

• KPK continue to investigate the alleged bribery related to the reversal of inquiry motion (interpelasi) by the Provincial House of Representatives (DPRD) against the inactive Governor of North Sumatera, Gatot Pujo Nugroho.

STATUS UPDATES

September 7

• Head of the Police Criminal Investigation Unit (Bareskrim) switched position with the Head of the National Narcotics Agency (BNN)

• KPK named Suryadharma Ali as suspect

• The Sanitation Office of Jakarta implicated in corruption

September 8

• Director of coal mining company PT Mitra Maju Sukses, Andrew Hidayat, was sentenced to two years in prison and Rp 200m in fines, or equal to an additional 3 months prison time, after proven in bribing a parliamentarian from Commission IV of the House of Representatives (DPR), Adriansyah

• Suryadharma Ali revealed that Commission VIII of the House of Representatives (DPR) ask money from him when he was Minister of Religion

• Suryadharma Ali implicate many names in alleged corruption of hajj funds, including parliamentarians, senators, even former President

September 9

• Attorney General office in Tanjungbalai Karimun will hand over two corruption cases to the Corruption Court of Tanjungpinang, Islands of Riau. Both cases involve an alleged corruption in construction of the Port Health Office building at Tanjungbalai Karimun in 2013, worth around Rp 3.4 billion

• Suryadharma Ali accuse KPK investigators to have benefited from corruption of hajj funds at the Ministry of Religion

September 10

• Supreme Review (PK) on pretrial of Hadi Purnomo resumed after two postponements

• Minister of Health in 2004-2009, Siti Fadilah Supari, admitted a direct appointment procedure in procurement of medical tools for treatment of the avian flu in 2006.

• Bareskrim questioned Pertamina’s CSR volunteers

• Again, Attorney General (Kejagung) questioned witnesses in corruption at Water Management Office

• Regent of Bengkulu won pretrial appeal on his status as suspect

September 11

• DPR Special Committee on corruption at PT Pelindo II will not influence investigations

• KPK arrested former General Director at Ministry of Labor and Transmigration

• Director of PT LInggar Jati, suspect in alleged corruption of construction of two ports in NTT province, return Rp 3.5 billion to Attorney General of NTT

• Former Head of Community Empowerment and Village Governance Office sentenced to 1.6 years in prison and Rp 50 million in fines, or equal to additional 3 months in prison by the Court of Palembang