Ken Dwijugiasteadi, Taxation Director General at Indonesia's Finance Ministry, said the government therefore wants the level of non-taxable income to depend on the local minimum wage that is set per province. Currently, there is one figure for non-taxable income that applies across Indonesia. However, this means tax revenue realization in certain provinces plunged rather drastically as many people fall into this non-taxable income category (due to lower local minimum wages).

Growth of Indonesia's Non-Taxable Income:

  1984 1995 2001 2005 2006 2009 2013 2015 2016
Non-Taxable Income
(in IDR million, per year)
0.96 1.72 2.88 12.0 13.2 15.8 24.3 36.0 54.0

Source: Bisnis Indonesia

This also mean Indonesia's tax ratio remains very low. Dwijugiasteadi added Indonesia's tax ratio is currently only 10.3 percent of gross domestic product (GDP), trailing far behind regional peers such as Thailand, Malaysia and the Philippines. It is important for Indonesian authorities to improve the tax ratio because tax revenue (including customs duties) accounts for around 85 percent of total government revenue and it therefore forms the backbone of government spending.

By reforming the tax system (including the tax amnesty program that ran between mid-July 2016 and 31 March 2017) Indonesia wants to enlarge the tax base, thus targeting to boost the tax ratio to 11-12 percent by 2018 and then to 16 percent in 2019. Although this may be a too ambitious target, recent steps - such as Indonesia's participation in OECD's Automatic Exchange of Information (AEOI), an initiative for tax information exchange among 100 jurisdictions designed to reign in tax evasion across the world - and additional agreements with Hong Kong and Singapore to share taxpayers' data will certainly help to achieve the targets.

Indonesian Minimum Wages (Monthly) per Province:

< IDR 1.50 million
IDR 1.50 - 1.75 million IDR 1.75 - 2.0 million IDR 2.00 - 2.25 million IDR 2.25 - 2.50 million IDR 2.50 - 3.00 million
> IDR 3.00 million
West Java Bengkulu North Sumatra Jambi Aceh Bangka-Belitung Jakarta
Central Java West Nusa Tenggara West Sumatra Central Kalimantan Riau Papua
East Java East Nusa Tenggara Lampung Gorontola South Sumatra North Sulawesi
Yogyakarta Banten West Sulawesi Riau Islands
West Kalimantan Southeast Sulawesi South Kalimantan
Bali East Kalimantan
North Maluku North Kalimantan
South Maluku West Papua
Central Sulawesi South Sulawesi

Source: Bisnis Indonesia