While Indonesia is still in the middle of the COVID-19 crisis, albeit – most likely – set to exit the economic recession in the second quarter of 2021 due to the so-called low base effect, and while Indonesian consumers continue to display reluctance to spend (reflected by 16 consecutive months of contracting retail trade on an annual basis), the Indonesian government expressed its intention to raise Indonesia’s Value-Added Tax (VAT, or in Indonesian: Pajak Pertambahan Nilai, abbreviated as PPN).

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Taxpayer compliance in Indonesia has risen after the completion of the tax amnesty program in early 2017 according to Yon Arsal, Director of Tax Revenue and Compliance at the Directorate General of Taxes.

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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.

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The last time Indonesia's tax revenue realization achieved the government's target was in 2008. In the following 8 years, a widening tax shortfall occurred as the government's tax revenue target rose more rapidly compared to tax revenue realization. In the 2017 State Budget Indonesia targets to collect IDR 1,498.9 trillion (approx. USD $111 billion) in tax revenue, while - based on the historic trend - tax revenue realization may only reach IDR 1,200 - 1,300 trillion, implying another big shortfall.

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Indonesian Finance Minister Bambang Brodjonegoro is optimistic that the Tax Amnesty Bill can be turned into law at the next meeting with the House of Representatives (DPR). Although not all 27 articles of the Tax Amnesty Bill have been discussed yet among both institutions, the most crucial articles have been debated and the DPR seems to agree that the bill will raise the government's tax revenue. The government and DPR agree that deliberations should be completed by 28 July 2016.

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Indonesian Finance Minister Bambang Brodjonegoro announced on Tuesday (05/04) that Indonesia's tax revenue reached IDR 194 trillion (approx. USD $14.7 billion) in the first quarter of 2016, down 2.1 percent from tax revenue in the same period one year earlier. Brodjonegoro blamed this poor result on lower income from value-added taxes (VATs) due to tax restitution and people's low consumption amid sluggish economic growth. Meanwhile, he informed that Indonesia plans to cut the personal income tax, a move aimed at boosting tax compliance.

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The Director General of Indonesia's Tax Office, Sigit Priadi Pramudito, unexpectedly resigned from his post on Tuesday (01/12) as it became increasingly clear that there will be a big shortfall, perhaps up to IDR 250 trillion (approx. USD $18 billion), in the country's tax collection this year. In the Revised 2015 State Budget the Indonesian government targets to collect IDR 1,294.3 trillion (approx. USD $94 billion). Pramudito is the first tax chief to resign from his post in the modern history of Indonesia.

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Bambang Brodjonegoro, Menteri Keuangan Indonesia, mengumumkan pada hari Rabu (27/05) bahwa Pemerintah Indonesia mungkin menaikkan batasan tidak kena pajak - yang membedakan antara penghasilan perorangan yang kena pajak dan tidak kena pajak - sebanyak hampir 50%. Meskipun tindakan ini akan mengimplikasikan pendapatan pajak yang lebih rendah untuk Pemerintah, ini akan memperkuat daya beli masyarakat Indonesia dan bisa agak mendongkrak aktivitas perekonomian di sebuah perekonomian yang dibebani oleh perlambatan pertumbuhan perekonomian sejak 2011.

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Fuad Rahmany, Director General of Taxes at the Indonesian Finance Ministry, said that state revenue from taxes will not achieve the target that has been set in the Revised 2014 State Budget (APBNP 2014). Rahmany expects that only 94 percent of the target, or about IDR 1,008 trillion (USD $84 billion) will be achieved (this figure excludes import duties and excise duties). Classical problems that cause Indonesia’s low tax-to-GDP ratio include low tax compliance, the low number of tax officials, and weak government coordination.

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The structure of tax revenue in Indonesia has not changed in the past decade resulting in the country’s still low tax-to-GDP ratio of between 12 and 13 percent. Emerging countries such as Indonesia typically have a low tax-to-GDP ratio as the government’s financial management is inadequate (and plagued by corruption). However, it is important for Indonesia to raise this ratio in order to have more funds available to finance the budget deficit, infrastructure development, healthcare, education and other social programs to combat poverty.

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Seorang pejabat pemerintah berposisi tinggi mengatakan bahwa pemerintah Indonesia berencana memotong pajak perusahaan secara bertahap dari 25% pada saat ini menjadi di bawah 18% dalam usaha untuk membuat Indonesia menjadi tempat yang lebih menarik untuk melakukan bisnis. Luhut Panjaitan, Kepala Staf Presiden Joko Widodo, mengkonfirmasi bahwa Widodo telah memerintahkan tindakan pajak yang terbaru ini. Selama beberapa minggu terakhir kita telah melihat pengumuman sejumlah kebijakan pajak baru karena pemerintah bertekad untuk mendongkrak pengumpulan pajak sebesar 30% di 2015.

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One strategy of Indonesian President Joko Widodo to generate more state revenues in order to enhance investments in social and economic development of Indonesia is by improving the country’s tax collection system. As the middle class as well as number of companies that are active in Indonesia has risen rapidly in recent years, it is disappointing that tax collection targets are rarely met in Southeast Asia’s largest economy: tax compliance is low, while corruption among civil servants (tax collectors) remains a structural problem.

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