Whistleblowing on Tax Fraud - The Role of Monetary Incentives and Social Discrimination

Abstract

Suparna Wijayaa, Muhammad Asfiroyanb

Revenue from tax has become the greatest income for Indonesia government, yet taxpayer’s compliance seems underperformed. The tax authority needs to find an alternative way to increase the revenue and suppress the tax fraud activities among payers. Rather than heavily depends on tax monitoring by fiscus, optimization of whistleblowing system is more effective to detect such acts. In this research, we try to investigate the separate and joint influence of monetary incentives and social discrimination towards whistleblowers on the level of tax fraud reporting intentions. An experiment to 48 participants concludes that monetary incentives make significant increases in reported fraud between tax regime without incentives to whistleblowing and tax regime with incentives. On the contrary, social discrimination in which participants received from other colleagues doesn’t make many differences in fraud reporting. We also investigate and find that the level of tax evasion before and after the incentives policy applied is not different, and the level of reporting from the person that experience loses from the fraudulent accounting (caused by the act of tax evader), significantly higher than others that didn’t suffer directly from it. Overall, the regression model built from both incentives and social discrimination variables doesn’t explain the behavior of tax fraud reporting from whistleblowers.