However, despite a better-than-expected tax amnesty program the tax revenue target of Indonesia in 2016 was not achieved, by a distance. Indonesia's tax revenue realization in 2016 reached IDR 1,283.6 trillion but in the Revised 2016 State Budget authorities targeted IDR 1,539.2 trillion, implying a shortfall of IDR 255.6 trillion last year.

It is interesting to note that the government's tax revenue target in 2017 is lower than the target that was set in the preceding state budget. This is considered a positive move. Although it is important to set high targets in order to have everyone perform at their maximum capacity, unrealistically high targets can undermine fiscal credibility (when there is a widening tax shortfall for a number of years as was the case in Indonesia) and, in fact, can de-motivate tax officials (who may feel that it is pointless to work hard because the target cannot be achieved anyway).

An official at the Indonesian Tax Directorate General said the higher tax revenue target in 2017 is supported by the government's tax amnesty program (that runs until 31 March 2017). Around 627,200 people joined this program so far. Although the program's momentum faded rapidly after its first phase (July-September 2016), there may be more people who join the program in the last phase but, more importantly, the taxpayer database of Indonesia has grown in the second half of 2016 and therefore more people are expected to fulfill their tax obligations in 2017.

A good tax ratio is important because tax revenue (including customs duties) account for 85.6 percent of total government revenue and it forms the backbone of government expenditure that is targeted at IDR 2,080.5 trillion in the 2017 State Budget (implying a budget deficit of 2.4 percent of the nation's gross domestic product). Indonesia's 2017 State Budget also includes sustained higher allocations for infrastructure, health, and social assistance, and better targeting for energy subsidies and social programs for the poor.

Indonesia's Tax Revenue Target and Realization 2012-2017 (including custom duties):

   2012  2013  2014  2015  2016  2017
(in IDR trillion)
1,016.2 1,148.4 1,246.1 1,489.3 1,539.2 1,498.9
(in IDR trillion)
 980.5 1,077.3 1,146.9 1,240.4 1,283.6
  96.5   93.8   92.0   83.3   83.4

Source: Investor Daily

Problematically, tax revenue in Indonesia has always been low. In fact, the country has one of the lowest tax-to-GDP ratios worldwide. Firstly, tax compliance is low. Only around 28 million Indonesians - out of an adult population that numbers over 185 million people - are registered as taxpayer. However, only 10 million actually fulfilled their tax obligations. According to information from the Ministry for Economic Affairs, a total of at least 44 million Indonesians should pay taxes. This indicates rampant tax evasion. the informal sector - both rural and urban - still plays an exceptionally big role in the Indonesian economy. Although it is difficult to pinpoint the exact number, it is estimated that between 55 and 65 percent of employment in Indonesia can be called informal. Today, around 80 percent of this informal employment is concentrated in the rural areas, particularly in the construction and agriculture sectors.

Secondly, tax evasion is made possible by weak government monitoring and weak law enforcement in Southeast Asia's largest economy. Moreover, it is assumed that a significant portion of tax money ends in the pockets of government officials (which also makes Indonesians unwilling to pay taxes). But apart from (perceived) corruption, there is also a shortage of tax officials mainly due to budget constraints and bureaucratic hurdles. There are currently only 37,000 Indonesian tax officials, implying that there is one tax official for each 7,000 Indonesians, an alarmingly weak ratio compared to other countries. The country needs at least 62,000 more tax employees.