Yon Arsal, Director of Tax Revenue and Compliance at the Directorate General of Taxes, said there is a major link between - on the one hand - a country's economic growth as well as inflation and - on the other hand - its tax revenue realization. With every 1 percent growth of gross domestic product (GDP) or inflation growth, tax revenue should grow 1 percent accordingly.

However, when we take a look at Indonesia's 2017 data, this "rule of thumb" does not apply. Arsal said that with Indonesia's 5.07 percent (y/y) GDP growth pace and 3.6 percent (y/y) inflation pace in 2017, the country's tax revenue realization should have grown by 8.67 percent (y/y) last year. In reality, however, Indonesia's tax revenue only grew by 4.08 percent (y/y) to IDR 1,151 trillion (approx. USD $84.6 billion), a figure that includes tax revenue from the nation's oil & gas sector.

As such Indonesia's tax buoyancy continued to weaken (a trend that started in 2011 when commodity prices plunged heavily). This weakening trend reflects the tax office's declining capability to tap the country's tax potential.

Meanwhile, with Indonesia's nominal GDP at IDR 13,588 trillion (approx. USD $999 billion) and tax revenue at IDR 1,151 trillion (approx. USD $84.6 billion) in 2017, the country's tax-to-GDP ratio fell to 8.4 percent. A very low figure that on the one hand reflects weak tax compliance and on the other hand authorities' weak capacity to monitor tax declarations.

While rising commodity prices managed to boost Indonesia's tax earnings, the country's bleak household consumption growth at 4.95 percent (y/y) in 2017 (touching the lowest growth pace in the past five years) undermined Indonesia's tax revenue last year. A rebound in household consumption would therefore not only boost Indonesia's economic growth but also the government's tax income.

Tax Revenue Realization Indonesia:

Year GDP
(in IDR trillion)
Tax Revenue
(in IDR trillion)
Tax Ratio 1
(excl. oil & gas)
Tax Ratio 2
(incl. oil & gas)
2010  6,446.9      569.4       8.8%       9.7%
2011  7,419.2      669.7       9.0%      10.0%
2012  8,230.9      752.4       9.1%      10.2%
2013  9,087.3      832.7       9.2%      10.1%
2014 10,094.9      897.7       8.9%       9.8%
2015 11,540.8     1,011.2       8.7%       9.1%
2016 12,406.8     1,069.9       8.6%       8.9%
2017 13,588.0     1,101.1       8.1%       8.4%