Update COVID-19 in Indonesia: 266,845 confirmed infections, 10,218 deaths (25 September 2020)
25 September 2020 (closed)
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There is concern about Indonesia's tax buoyancy. Tax buoyancy is the indicator that measures efficiency and responsiveness of revenue mobilization in response to growth in gross domestic product (GDP) or national income. While, Indonesia's GDP accelerated 5.02 percent (y/y) in 2016, the country's tax revenue realization only rose 4.2 percent (y/y) to IDR 1,104.9 trillion (approx. USD $83.1 billion). Since 2011 (when commodity prices plunged heavily) tax buoyancy has been weakening in Indonesia.
The continuation of weak tax buoyancy in 2016 occurred despite the successful tax amnesty program of the Indonesian government. This development gives rise to concern because when the nation's tax revenue collection growth is not in line with overall economic growth, then Indonesia's (already low) tax-to-GDP ratio is falling further. When strengthening businesses boost GDP growth but tax revenue realization falls behind, then there could be a "leakage".
Bawono Kristiaji, tax analyst at DDTC (a research and knowledge based taxation institution), advises the Indonesian government to study the rising tax gap. It is particularly important to detect in which sector the biggest discrepancy - between GDP growth and tax revenue growth - occurs. Secondly, administration, monitoring, policy-making, and law enforcement all need to be improved to ensure tax compliance in Southeast Asia's largest economy.
Yustinus Prastowo, Executive Director of the Center for Indonesian Taxation Analysis, says Indonesia's tax buoyancy shows the tax office's declining capability to tap the government's tax potential. He added it is ironic that tax revenue realization growth in a sector such as telecommunication was actually in line with - or actually better than - the pace of overall macroeconomic growth, while this sector was subject to tax incentives.
Indonesian Finance Minister Sri Mulyani Indrawati confirmed there are several sectors in the Indonesian economy that show robust growth over the past couple of years but tax revenue collection from these sectors is not growing accordingly. She mentioned this phenomenon occurs in the trade, construction and mining sectors of Indonesia. Therefore, the government will study and identify the reasons behind this asynchronous performance.