ETHICS MANAGEMENT IN THE PUBLIC SECTOR - …

1 EETTHHIICCSSMMAANNAAGGEEMMEENNTTIINNTTHH EEPPUUBBLLIICCSSEECCTTOORR::TTHHEECCAASS EEOOFFIINNDDOONNEESSIIAANNTTAAXXAADDMMII NNIISSTTRRAATTIIOONNRREEFFOORRMMbyYari YuhariprasetiaSubmitted as part of the requirements for admission to the degree ofProfessional Doctorate in PUBLIC AdministrationUniversity of CanberraMarch2015iiiAbstractThe thesis investigates the implementation of ETHICS MANAGEMENT in the IndonesianDGT (Directorate General of Taxes). ETHICS MANAGEMENT is the sum of effortstakento create PUBLIC servants ethical sensitivity and consciousness in performing the ETHICS MANAGEMENT literature, the compliance and integrity approachesare commonly distinguished and represented as two opposing ends of a literature also stresses that the two approaches should be combined and a balancestruck between them.

2 This study examines how the two approachesare are two dimensions of ETHICS MANAGEMENT : the what , which refers to thespecific instruments and policies, and the how , which comprises the design andformalisation of structures and processes. The how dimension is known as study seeks to show how these two dimensionsof ethicsmanagementhavebeen implemented and how they have evolvedover time in , it observes how the change has affected the ETHICS study found that the evolution oftheethics MANAGEMENT approach in the DGTconformsto international studies, in which the approach and decisions tend to bepragmatic andscandal-driven. It also discovered that the compliance-integritycontinuum has limitations as an analytical tool and proposed the use of thecompliance- integrity matrix.

3 Lastly, the study argued that formal ethicsinstitutionalisationand thecomplianceapproach do not always converge, and neitherdo informal ETHICS institutionalisation and the integrity research presents three recommendations for DGT. First, the DGT s internalcompliance function should be in a unit of its own, rather than combined with otherfunctions. Second, for more improved ETHICS MANAGEMENT , the DGT should usesurveys asanethics instrument. Third, the DGT should apply moreinformal andimplicit ETHICS institutionalisation, such as ethical loving memories of my parents,Abdul Hanan and Mariam(born Maemunah), this thesis is dedicated tothemfor theirunconditional love and affectionthat I can never repay,and fortheir trust and faith in methat Iwillnever deepest appreciationgoes to my primary supervisor, John Halligan, forhis invaluable insights and enduring support during my study and thesiswriting appreciation is also addressed tomy secondarysupervisor, WahyuSutiyono, for allthesupport,feedback also would like to thank Penelope St.

4 Clair forher greatworkeditingmy final draft and for the wonderful sincere thankfulness goes to the DFAT (Ausaid) for thescholarshipand all assistancegiven tomein pursuingmy doctoral degree. I amgratefultothe DGTfor the priceless data ,Iwould like to thank the ANZSOG and Faculty of Business, Governmentand Law, University of Canberra forall the help and supports, and allcolleagues for the time spent together enjoyingthe academic and greatest gratitude is expressed to my family, my wife IsmaritaRamayantiand my daughters ShafiraNada Fathiaand MutiaraNandhiaty,for all the love, patience and especially thank mywonderful wife forherunwavering support and of B: Certificate of Authorship of of of of of of and approachof the study ETHICS MANAGEMENT in the DGT?

5 Of the AND INDONESIAN TAX interest in DGT in tax current Indonesian tax administration MANAGEMENT as part of the MANAGEMENT THEMES IN THE in in ETHICS thinking on gap in the perspective and OFETHICS MANAGEMENTADOPTEDINTHE of the DGT s ETHICS approach integrity approach on the ETHICS MANAGEMENT analysis of the AND STRUCTURE IN THE DGT S INTEGRITYMANAGEMENT : instrument implementation and aspect in DGT s integrity MANAGEMENT of ETHICS institutionalisation in the DGT s ETHICS MANAGEMENT approach as reflected in its integritymanagement evolution of ETHICS MANAGEMENT in the limitation of the compliance- integrity institutionalisation and the approach of ETHICS issues in the DGT s ETHICS , contributions and TablesTable :Number oftheDGT s offices.

6 23 Table :Comparison of Nielsen s eQ Satisfaction Ratings for selectedAsian economies ..40 Table :Theintegrity MANAGEMENT instruments ..64 Table :Atypologyof institutionalisation ..71 Table :Overall participant sample ..94 Table : ETHICS MANAGEMENT instruments intheDGT 2002-2006 ..133 Table : ETHICS MANAGEMENT instruments intheDGT 2007-2010 ..135 Table : ETHICS MANAGEMENT instruments intheDGT :TheDGT s integrity MANAGEMENT framework and ethicsmanagement approach ..173xvList of FiguresFigure :Ministry of Finance s Organisation Structure ..22 Figure :Structure ofthe DGT s Offices ..24 Figure :Indonesia total national revenue in 2012 in trillion :Contribution of tax revenue to total national revenue from 2003to 2012 in trillion Rp..26 Figure :Comparison of oil & gas revenue and tax revenue from1984/1985 to 1993/1994.

7 27 Figure :DGT s Head Office organisationalstructure after the reform ..34 Figure :KITSDA s organisational structure ..35 Figure :Stages of implementation of the tax administration reform ..38 Figure :Number of registered taxpayers from :Indonesian Corruption Perception Index 2006-2011 ..44 Figure :The relationship between Law and ETHICS ..49 Figure :The compliance- integrity continuum ..80 Figure :Countries by overall MANAGEMENT and ETHICS regime ..80 Figure :The conceptual framework ..83 Figure :The conceptualframework for Chapter 5 ..99 Figure : ETHICS instruments adopted intheDGT ..132 Figure :The conceptual framework for Chapter : ETHICS MANAGEMENT in the DGT on the compliance-integritycontinuum (2010-2012), alternative 1 ..175 Figure : ETHICS MANAGEMENT in the DGT on the compliance-integritycontinuum (2010-2012), alternative 2.

8 176 Figure :The compliance- integrity matrix ..178xviiList of AcronymsCEC:Corruption Eradication CommissionDGT:Directorate General of TaxesDJP:DirekturJenderalPajak (English: DGT)IMF:InternationalMonetary FundKEMENKEU:KementerianKeuangan (English: MOF)KEMENKUMHAM:KementerianHukumdanHakAs asiManusia (Ministry ofJustice and Human Rights)KEMENPAN:KementerianPendayagunaan Aparatur Negara(Ministry ofState Apparatus Empowerment)KITSDA:Kepatuhan Internal danSumberDayaAparatur (InternalCompliance and Transformation of Human Resources)KPK:KomisiPemberantasanKorupsi (English: CEC)LOI:Letter of IntentMOF:Ministry of FinanceOECD:Organisation forEconomic Cooperation and DevelopmentxixList of AppendicesAppendix 1:Chronology of the reform based on the instruments :DGT s 2002 Code of ETHICS .

9 211 Appendix3:DGT s 2007 Code of ETHICS ..213 Appendix4:List of questions for interviewsand FGD ..214 Appendix5:Participant Information Form ..216 Appendix6:Invitation to participate in the :Informed Consent Form ..221 Appendix8:Principles for post- PUBLIC thesis examines the ETHICS MANAGEMENT in the Indonesian Directorate General ofTaxes (DGT), whichwasimplemented under the framework of the Indonesian taxadministration thesis discusses first the increasing interest in ETHICS inorganisations and how this relates to the Indonesian tax administration , it discusses how ETHICS MANAGEMENT hasbecome thecrucial part of thenexplores the idea of managing ETHICS in organisations and also theapproaches and elements suggestedforimplementing thisidea.

10 As regards to theapproaches, the thesis discusses more deeply the two major approaches in ethicsmanagement, namely the compliance approach and the integrity approach. Further,itaccentuates the compliance- integrity continuum as the main reference and analyticaltool for ETHICS MANAGEMENT . Concerning the elements, the OECD s integritymanagement framework withitsthree pillars is employed as well toexamine theimplementation of ETHICS MANAGEMENT intheDGT. The focus of this thesis is toinvestigatetheDGT s ETHICS MANAGEMENT s approach, which is analysed by casting itsintegrity MANAGEMENT framework in the compliance- integrity has been an increasinginterestin ETHICS in publicorganisationsoverthe lastseveral for ETHICS has becomean integral partofpublicservice and is not a left-over to be considered after other issues (Lawton, Rayner &Lasthuizen 2013, p.)