The government of Indonesia targets to collect IDR 1,618.1 trillion (approx. USD $120 billion) worth of tax revenue in the 2018 State Budget. However, this would imply a 20 percent (y/y) increase from the estimated IDR 1,353.0 trillion that Southeast Asia's largest economy will collect in 2017. This seems a much too ambitious growth pace, especially considering the average annual tax revenue growth pace in the 2014-2017 is (an estimated) 5.6 percent.

Indeed there is room for more-than-average tax revenue growth in 2018 because Indonesia's Tax Office can rely on a broader taxpayer base due to last year's tax amnesty program through which nearly USD $360 billion of assets were reported by taxpayers, while it added IDR 107 trillion (approx. USD $8 billion) to the country's 2016 tax revenue. However, this will not be enough to trigger the required 20 percent growth in tax revenue to achieve the 2018 target.

There are also some risks that may occur in 2018. US President Donald Trump wants to make a more attractive tax regime in the USA, hence encouraging direct investment. As a result other countries may also decide to make their tax regimes more attractive. This could make investors decide to invest in other countries than Indonesia.

Secondly, Indonesia is to enter the political years of 2018 (regional elections) and 2019 (legislative and presidential elections). This can shift the focus from the tax reform agenda to political matters.

Thirdly, one of the major reasons why Indonesia's economic growth has been stagnant at around 5 percent (y/y) in recent years is weak domestic consumption. Although there are early signs of a rebound, a sudden upswing in household consumption is unlikely to occur in the near future.

The Danny Darussalam Tax Center (DDTC) said it expects a IDR 182 trillion (approx. USD $13.5 billion) tax shortfall in 2018. Meanwhile, this research institution put its forecast for the 2017 tax shortfall at IDR 147 trillion, higher than Indonesian Finance Minister Sri Mulyani Indrawati's forecast of IDR 120 trillion.

Earlier this week Indrawati said she expects to see a IDR 120 trillion tax shortfall this year. However, despite this shortfall, there will not be an impact on the fiscal deficit because government spending will also not reach the full target. Hence, Indonesia's fiscal deficit is expected to be around 2.6 - 2.7 percent of gross domestic product (GDP) for 2017. Meanwhile, better-than-assumed crude oil prices so far in 2017 have helped the government's non-tax revenue to exceed its target.

Earlier this month, Finance Ministry official Robert Pakpahan replaced retired Ken Dwijugiasteadi as tax director general. Pakpahan previously served as head of the Finance Ministry's debt management office, managing Indonesia's debts and bond issuance.