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.
Developed countries are characterized by relatively high tax-to-GDP ratios. A few examples - based on data from the Heritage Foundation that cover fiscal year 2012 - are France (44.6 percent), Germany (40.6 percent), Netherlands (39.8 percent), United Kingdom (39.0 percent), and the United States (26.9 percent). Regarding this ratio, Indonesia is far below the level of the developed world. Moreover, when we compare Indonesia’s tax-to-GDP ratio with its regional peers, then Indonesia is also lagging behind. For example, Thailand (17.0 percent), Malaysia (15.5 percent), Philippines (14.4 percent), Singapore (14.2 percent), and Vietnam (13.8 percent).
The level of tax compliance is low in Indonesia. Indeed many Indonesians are reluctant to pay tax as they believe that their tax money will not be used to benefit the country but will go into the pockets of officials working at the tax department. Furthermore, low tax compliance in Indonesia is made possible as the government has not been able to force such compliance (amid the low level of law enforcement and weak tax auditing). One reason that explains this current state is the low number of tax officials in Indonesia. According to data from Indonesia’s General Tax Directorate (DJP) there were only 32,214 tax officials working in Indonesia in 2013. Considering that Indonesia’s total population numbers over 246 million people, it means that there is one tax official per 7,636 Indonesians. This ratio is also much lower than in other (developed) countries. For example, in Germany there are approximately 110,000 tax officials in a population of about 80 million (1:727), or, in Japan there are 66,000 tax officials in a population of 120 million people (1:1,818).
Tax specialist Darussalam, who works at Universitas Indonesia (UI), explains that the main reason why the number of Indonesian tax officials cannot be increased is because the tax department is not independent yet. To appoint more workers it needs permission from the Finance Ministry and the Ministry of Administrative Reform and Bureaucratic Reform. However, probably budget constraints are also behind why the government cannot ‘invest’ in more tax officials. The budget of the DJP was in fact cut from IDR 5.46 trillion to IDR 5.23 trillion this year. A doubling of the number of tax officials may see an increase of the country’s tax-to-GDP ratio to the level of 16 percent.
It is also worth noting that the Indonesian government has only managed to achieve its tax revenue target (set in the annual State Budget) twice in the last decade. This year too, it had to lower its target from an initial IDR 1,110.2 trillion (USD $94.9 billion) mentioned in the 2014 State Budget to IDR 1,072 trillion (USD $91.6 billion) in the revised 2014 State Budget.
Tax revenues (particularly consisting of corporate income tax) currently account for about 80 percent of total state income in Indonesia.
Ha! Maybe an idea for the Indonesian Government to hire some Dutch tax officials for setting up a good tax system .. Dutch tax officials are the best ones in: coming up with and collecting taxes .. :))