The Merits and Drawbacks of Taxation (3)

In the textbook of public finance, taxes are meant to build schools, fund hospitals, and mend broken roads. Yet in Indonesia’s state-owned enterprises, a curious detour occurs: part of these taxes metamorphoses into executive salaries and tantiem so extravagant that one wonders if “public service” has become a synonym for “personal luxury.”

The directors, hailed as guardians of national assets, collect packages that would not look out of place in Wall Street. Yet unlike Wall Street, where bonuses are supposedly tied to profits, here the magic lies in knowing that the taxpayer will cushion any fall. Thus, taxpayers play the unglamorous role of silent investors, except without dividends, voting rights, or even the courtesy of being asked. They pay the bill, while the directors sip champagne from crystal glasses engraved with the word “performance.” The official justification, of course, is that high salaries attract high talent. Yet in this peculiar theatre, high salaries often attract those with the right political surnames rather than the right professional skills. The currency of merit is devalued; the currency of connections is priceless. It is here that taxation becomes the cruel punchline. The worker pays VAT on cooking oil, income tax on meagre wages, and excise on cigarettes, only to discover that part of this sacrifice bankrolls the tantiem of directors who debate which European resort to visit next summer. The irony sharpens during bailouts. When losses pile up, the message is blunt: “Citizens, your taxes will keep the lights on.” Yet when bonuses are distributed, the message changes: “Citizens, this is none of your business.”

In theory, taxation is a social contract. In practice, it feels more like a pickpocketing contract: the state’s hand enters your pocket legally, only for the proceeds to reappear in the form of imported sedans and luxury watches for people you will never meet. The directors, naturally, never phrase it this way. They speak of stewardship, responsibility, and integrity. Meanwhile, their allowances multiply like rabbits, while the taxpayer is told to tighten his belt “for the nation’s good.” 

And so, the narrative of national development becomes twisted. Taxes meant for roads end up paving someone’s driveway. Taxes meant for health end up subsidising someone’s spa weekend. Taxes meant for education end up paying for someone’s children to study abroad.

Defenders cry, “But this is global practice!” Perhaps. Yet globally, executives who fail are often sacked. In Indonesia, they are recycled, reappointed, and rewarded—with the taxpayer once again footing the bill.

Meanwhile, the average citizen reads headlines about billions in director bonuses while simultaneously being lectured about the need to pay taxes “honestly.” Honesty, it seems, is demanded only from the bottom. This is why cynicism grows. People begin to view taxation not as civic duty but as daylight robbery decorated with stamps and signatures. They start to wonder: are we citizens or are we shareholders trapped in a rigged casino?

The theatre of absurdity deepens with the annual tantiem ceremony. Performance bonuses are handed out even when performance itself is invisible. It is less a reward than a ritual—funded, of course, by the same public that is told to endure rising taxes. At this point, one must ask: what exactly do taxpayers get in return? They do not get dividends, they do not get discounts, and they certainly do not get invited to the banquets. They get slogans, speeches, and the occasional pothole filled. Thus, the gap between the rhetoric of sacrifice and the reality of indulgence becomes unbearable. Citizens are scolded to pay taxes “for the good of the nation,” but directors quietly convert those taxes into personal good.

If one is generous, one might call this inefficiency. If one is blunt, one might call it legalised exploitation. Either way, it is the taxpayer who bleeds, while the director smiles for the annual report photograph. The tragedy is not only financial but moral. When taxes are perceived as feeding the few instead of serving the many, trust in the state corrodes, and citizens begin to flirt with tax evasion as quiet revenge. And yet the speeches continue. “Integrity, accountability, transparency,” chant the directors, even as their perks expand. The taxpayer listens, nods politely, and mutters under their breath: “All funded by us.”

So, are director salaries and tantiem rational? Only if one ignores the taxpayer entirely. Only if one believes that public service should be rewarded like aristocracy while the actual public plays the role of obedient peasantry. In the end, the issue is not just numbers but justice. The taxpayer deserves more than being the invisible sponsor of elite banquets. Until that changes, every tax receipt will feel less like a contribution to the nation and more like an entry ticket to someone else’s endless party. 

In The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay (2019, W. W. Norton & Company), Emmanuel Saez and Gabriel Zucman argue that ordinary citizens feel the weight of taxation more heavily because the wealthiest individuals and corporations have managed to design a system that bends in their favour. Through loopholes, offshore havens, and favourable legislation shaped by political influence, the rich have dramatically reduced their tax contributions, while the state still requires revenue to function. Consequently, the fiscal burden shifts downward, leaving workers and the middle class to shoulder a disproportionate share through payroll taxes, consumption taxes, and income taxes with fewer escape routes. The injustice is not merely numerical but moral, for it creates a society where those with the least bargaining power are compelled to pay faithfully, while those with the greatest means can step aside from their obligations. This imbalance generates a silent resentment, for ordinary people know, even if dimly, that they are funding a system that the powerful exploit yet refuse to support fairly.

In the Indonesian context, the sense of unfairness described by Saez and Zucman resonates strongly, for the tax system here too has long been tilted in ways that protect the powerful. While small traders, salaried employees, and ordinary consumers pay their dues almost automatically through VAT and withholding taxes, the wealthy and politically connected often have the privilege of negotiating their obligations. Tax amnesties, repeated in recent years, are sold as pragmatic policy but in practice feel like a reward for avoidance, giving billionaires and conglomerates a clean slate at a discount while the working class never enjoys such forgiveness. Moreover, much of the fiscal burden still relies on indirect taxation, which bites harder into the budgets of low- and middle-income households, making them feel as if every shopping trip is a contribution to a state that looks the other way when elites park their wealth abroad. In this way, the injustice in taxation is not only imported from global financial games but also deeply homegrown, where power and privilege determine who really pays and who simply signs photo-op pledges about patriotism.

When we compare the tax burdens of state-owned enterprises and small or medium businesses in Indonesia, the contrast becomes almost theatrical. Large BUMNs, often cushioned by political ties and financial flexibility, can negotiate with the state over arrears or enjoy restructuring schemes that soften their liabilities. Even when they report losses, these giants are often rescued with capital injections from the state budget, which ironically comes from the very taxes paid by small businesses and workers. By contrast, UMKM entrepreneurs—who sell fried rice on the street or manage tiny online shops—are compelled to pay final income tax at a flat rate, regardless of their profitability, with little room for manoeuvre. For them, taxation feels less like a civic duty and more like a toll gate that opens only one way. The state’s protective hand hovers above the mighty, while the smallest must survive in the rain. This reveals not only a fiscal imbalance but also a political statement: in Indonesia, who you are determines how the taxman treats you.

It is almost comical, in a tragic way, how Indonesia treats its economic players. The BUMNs are like golden children in a feudal palace, endlessly pampered even when they stumble, their debts forgiven with a paternal smile, their losses covered by the treasury’s endless well. They swagger about like spoiled heirs, knowing that the state will always be there to clean up their mess. Meanwhile, UMKMs are treated like stepchildren at the back of the house—expected to contribute loyally, no matter how small their income, and scolded if they fail to meet the rules. They are lectured on patriotism while quietly watching the privileged dine on subsidies. The irony is glaring: the supposed engines of the people’s economy are kept running not by generous support, but by sheer resilience, while the corporate behemoths suckle endlessly at the teat of public money. In the theatre of taxation, the script is already written: the chosen ones receive applause, while the rest of the cast pays for the tickets.

In the wayang kulit theatre of Indonesian politics, the BUMNs strut across the stage as the pampered princes of the realm, their shadows elongated by the light of the state’s generosity. When they falter, the dalang tilts the story so that blame dissolves, and a chorus of ministers rushes to rescue them with new bags of gold. They are the Gatotkaca of finance: mighty in appearance, yet forever propped up by unseen magic. In contrast, the UMKMs shuffle onto the screen as humble clowns—Semar, Gareng, Petruk, Bagong—carrying the burdens of daily survival and yet forced to hand over a portion of their meagre harvest to keep the kingdom turning. They are comic relief, but also sacrificial offerings, their loyalty exploited while the princes feast. The audience laughs at the jokes, but behind the laughter lies the bitter truth: in this shadow play, justice is only a puppet, and the strings are pulled by power.

You know, if Indonesian taxation were a stand-up routine, the punchline would always be the same: the rich laugh first, and the poor pay for the ticket. Imagine this—BUMNs are like those entitled kids who fail every exam but still get rewarded with a new iPhone from their parents. “Don’t worry, Nak, you failed again? Here’s more allowance from the state budget!” Meanwhile, UMKMs are like the straight-A students who still get yelled at for not sweeping the floor. They’re told: “Patriotism is in paying your taxes!”—as if buying fried tofu and coughing up VAT at the same time makes you a national hero. And the biggest joke? Every time the government launches another tax amnesty, it’s like announcing a sale for billionaires: “Come on, folks! Evade for years, pay half price now, and we’ll call you patriotic!” Honestly, this isn’t taxation; it’s a comedy show where the audience pays, but the clowns get the applause.

In The Triumph of Injustice, Saez and Zucman explain that the reason fairness in taxation seems stuck in this broken loop is because the system was never neutral to begin with. Tax codes are not written in the sky; they are crafted by people in power, and those with money have far more influence over the pen. Every loophole, deduction, and exemption is the product of decades of lobbying, compromise, and quiet deals that favour the wealthy. Fairness does not remain stagnant by accident—it is actively contained, reshaped, and delayed whenever reform threatens the interests of those who benefit most. Ordinary citizens may imagine taxation as a set of equal rules applied to all, but in reality it is a battlefield where one side has armour, lawyers, and offshore accounts, while the other side has only payslips and grocery receipts. That is why, decade after decade, the promise of fairness is spoken in speeches, yet rarely lived in practice.

Taxation and Social Policy, edited by Andy Lymer, Margaret May, and Adrian Sinfield, (2023 by Policy Press) presents a compelling exploration of how taxation and social policy intersect—two domains often considered separately in scholarly and policy circles. It fills a substantial void in both the social policy and tax literatures by bringing them into dialogue, especially in the context of redistribution and behavioural incentives.

According to the editors, taxation in a democratic society cannot be reduced to a mere mechanism for raising revenue. The editors stress that every tax code is also a moral and political document, reflecting choices about fairness, responsibility, and the distribution of resources. In democracies, taxes are one of the most tangible ways in which citizens encounter the state: when we pay, we are not only funding public expenditure but also participating in a collective project of shaping society.

The book makes clear that taxation channels social policy in two distinct yet interwoven ways. First, it provides the financial basis for welfare programmes, pensions, healthcare, housing, and education—without which the promises of democracy would ring hollow. Second, it actively redistributes resources, signalling whose interests a society prioritises and how inequalities are to be addressed. In this sense, taxation is both the lifeblood of social provision and a mirror of democratic values.

Thus, the editors argue, debates over tax should never be confined to technical calculations of efficiency or revenue yield. They are also debates about justice, equality, and the kind of society we wish to inhabit. A democracy that treats taxation only as a cash register misses the deeper truth: that taxes are among the most powerful instruments through which social solidarity and democratic ideals are made real.

A particularly vivid way of understanding the democratic role of taxation, as highlighted in Taxation and Social Policy), is to compare progressive income taxes with broad consumption taxes. Progressive taxation, where higher earners contribute a larger proportion of their income, embodies the principle that those who have benefited most from society’s structures should shoulder a greater share of its upkeep. It is, in effect, a democratic expression of solidarity, ensuring that wealth is redistributed to fund health, education, and welfare in a way that strengthens the social fabric.

By contrast, consumption taxes—such as VAT or sales taxes—tend to be regressive. They take a larger slice from the income of poorer households than from the rich, since low-income groups spend a greater proportion of their earnings on consumption. This means that while such taxes may be efficient to collect and politically convenient, they undermine democratic ideals of fairness. They risk transforming the tax system into a blunt instrument that deepens inequality rather than softens it.

The editors insist that a democracy’s tax policy reveals its moral priorities. A state that leans heavily on regressive taxes signals indifference to inequality, whereas one that privileges progressive taxation demonstrates a commitment to social justice. Thus, taxation is not simply an accounting exercise—it is a mirror of how democracy values its citizens and what kind of society it aspires to be.

In reflecting upon Taxation and Social Policy (Lymer, May & Sinfield, 2023, Policy Press), one quickly realises that the book foregrounds the constructive potential of taxation: the way fiscal systems can serve as levers of justice, inclusion, and democratic negotiation. Yet, as soon as one leaves that normative landscape and steps into the arguments presented in William F. Shughart II’s Taxing Choice: The Predatory Politics of Fiscal Discrimination (1997, Independent Institute), the tone shifts dramatically. Where Lymer and his colleagues highlight tax as a tool for social solidarity, Shughart paints it as an instrument that can easily be twisted into a weapon of discrimination and manipulation, particularly when governments begin to dictate personal consumption through so-called “sin taxes” and selective levies. Thus, the intellectual journey from the former to the latter is akin to moving from an idealistic sketch of what taxation ought to achieve, to a cautionary exposé of how those same mechanisms can be abused in practice.

Taxing Choice: The Predatory Politics of Fiscal Discrimination" is an edited volume by William F. Shughart II that first appeared in 1997. Shughart and a collection of distinguished scholars dissect the phenomenon of “sin taxes” and selective excise taxation—levies imposed on goods and behaviours deemed morally or politically incorrect, such as alcohol, tobacco, soft drinks, margarine, telephone calls, airline tickets and even fishing gear. They argue persuasively that such fiscal measures, despite their popularity in the political arena, fail to deliver promised social or economic benefits. In fact, these taxes often succeed only in burdening lower-income individuals, while empowering special interest groups and nurturing bureaucratic corruption

Moreover, the essays draw attention to troubling trends: if taxing alcohol or cigarettes is accepted, what stops policymakers from extending punitive regimes to obesity, sunbathing, even certain books, films or beliefs labelled “dangerous”? Through historical, constitutional and political-economic lenses, the contributors explore a spectrum of issues—from the history of excise taxes, through Prohibition and the war on drugs, to civil liberties, asset forfeiture, and the dangers of fiscal discrimination. The result is a timely, thought-provoking interrogation of how supposedly neutral fiscal tools can be wielded in deeply discriminatory and undemocratic ways.

What emerges most clearly from Taxing Choice is the revelation that selective taxes—those placed upon alcohol, tobacco, sugary drinks, or other so-called “sinful” commodities—rarely function as engines of social good. They are advertised to the public as instruments of health improvement, moral reform, or fiscal responsibility, yet in practice they fall most heavily upon those with the least disposable income. A poor household, compelled by habit or circumstance to purchase cigarettes, soft drinks, or other taxed items, ends up surrendering a far larger proportion of its earnings than the wealthy ever would. Thus, instead of elevating public welfare, these levies exacerbate inequality, draining the pockets of the disadvantaged while granting politicians the opportunity to parade as defenders of virtue.

Even more troubling is the way such taxes become entangled with politics. Legislators, keen to appear tough on vice, discover that these measures provide a steady stream of revenue without the risks of raising general taxation. They can posture as moral guardians while simultaneously channelling funds to favoured interest groups or bureaucratic departments. In that sense, the tax code becomes not a neutral tool of governance but a battlefield of symbolic politics, where the poor pay the price for the political theatre of the powerful.

It is illuminating to place Taxation and Social Policy (Lymer, May & Sinfield, 2023, Policy Press) alongside William F. Shughart II’s Taxing Choice: The Predatory Politics of Fiscal Discrimination (1997, Transaction Publishers/Routledge). Though they emerge from different intellectual traditions and moments in time, they converge on a shared concern: taxation is never neutral, and it is always bound up with questions of justice, politics, and power.

Shughart’s Taxing Choice focuses sharply on what he and his contributors call “fiscal discrimination.” By this they mean selective or “sin” taxes, such as levies on alcohol, tobacco, sugary drinks, or even airline tickets, which are justified on moral or health grounds but, in practice, disproportionately harm lower-income groups and empower political interests. The book paints a picture of taxation as a predatory tool, manipulated by governments and lobbyists to create winners and losers under the guise of public virtue.

In contrast, Taxation and Social Policy adopts a more constructive and policy-oriented perspective. Rather than seeing taxation primarily as predation, Lymer, May and Sinfield argue that taxes can and should be integrated with social policy to advance welfare, redistribute wealth, and embody democratic values. They stress that progressive taxation, if designed fairly, can fund health, pensions, and education in ways that strengthen the social contract.

The tension between the two books is revealing. Where Shughart warns us of the dangers of politicised taxation—where fiscal discrimination masquerades as moral action—Lymer and colleagues remind us of the potential for taxation to be reclaimed as a democratic instrument of justice. Taken together, the books underscore both sides of the coin: taxation can indeed be a weapon of inequality, but it can also serve as a foundation for social solidarity, depending on how societies choose to wield it.

[Part 4]
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