Indonesia's budget deficit could rise to 2.2 percent of the nation's gross domestic product (GDP) in 2015 (from a projected 1.9 percent of GDP) as the government's tax revenue may fall short of its target. Based on the revised 2015 State Budget, the government targets to collect IDR 1,489 trillion (approx. USD $110 billion) worth of tax money this year. However, as of August 2015 tax revenue collection stood at 45.8 percent of the 2015 target (or approx. IDR 593 trillion).

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Ogan Komering Ilir Pulp & Paper Mills (OKI), a unit of the Sinar Mas Group, has been granted a tax holiday by the Indonesian government for a period of eight years. Other companies that were awarded tax incentives are Unilever Oleochemical Indonesia, Petrokimia Butadine Indonesia, and Energi Sejahtera Mas. Through these incentives the government of Indonesia aims to make Indonesia more attractive for long-term investment thus boosting the nation’s sluggish economic growth.

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Today, the Indonesian government announced it extended a tax incentive for “pioneering” industries. This term refers to those industries that are considered key industries that cause a multiplier effect in the Indonesian economy (hence boosting economic) and provide employment opportunities for the local population. Examples of such industries are oil refinery, infrastructure, maritime transport, telecommunications, downstream metal production and agriculture processing. The extended incentive is effective per 16 August 2015.

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The Indonesian government targets to narrow the budget deficit to between 1.9 and 2 percent of gross domestic product (GDP) in 2016 from a projected budget deficit of 2.2 percent of GDP in 2015. Indonesian Finance Minister Bambang Brodjonegoro said on Monday (06/07) that in 2016 the government will continue to prioritize spending on infrastructure development as well as energy and food. President Joko Widodo is scheduled to officially announce the 2016 State Budget in a speech in front of parliament on 16 August 2015.

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Several international institutions revised down their outlook for economic growth of Indonesia in 2015 as foreign investors have been somewhat disappointed with the performance of the new Indonesian government, while the global economic picture remains far from rosy. Goldman Sachs, JPMorgan Chase, Credit Suisse and Nomura Holdings have all slashed Indonesia’s economic growth forecast this year to below the five percent (year-on-year) mark. Last year Indonesia’s economic growth touched a five-year low of 5.02 percent (y/y).

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Bambang Brodjonegoro, Indonesian Finance Minister, announced on Wednesday (27/05) that the Indonesian government may raise the income threshold - which separates individuals’ income that is taxable from non-taxable income - by almost 50 percent. Although this move would imply less tax revenue for the government, it would strengthen the purchasing power of the less fortunate Indonesians and can somewhat boost economic activity in an economy that has been plagued by slowing economic growth since 2011.

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On Monday (11/05) it was reported - quoting an Indonesian tax official - that Indonesian President Joko Widodo had already ordered to cut the country’s corporate tax rate from 25 percent currently to below 18 percent in a bid to attract more investment and to make Indonesia’s business environment more competitive (for example, Singapore’s corporate tax is currently 17 percent). One day later, however, Finance Minister Bambang Brodjonegoro stated that, if the corporate tax is to be revised, it will be next year at the earliest.

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Starting from January 2015, Indonesian tobacco products are subject to an average tax rise of 8.7 percent. The excise tax on machine-rolled cigarettes becomes IDR 355 (USD $0.03) and on hand-rolled cigarettes IDR 290 (USD $0.02) per stick. The tax hike is implemented by the government in a move to increase state income through tax revenues. The higher excise tax is expected to have a minor effect on tobacco sales in Indonesia as retail prices for cigarettes remain among the lowest in the Southeast Asian region.

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Exports of Indonesian crude palm oil (CPO) and its derivatives increased 45.8 percent month-on-month (m/m) to 2.47 million metric tons in October 2014 primarily supported by the zero export tariff that was implemented by the Indonesian government per 1 October. Indonesia has a mechanism that when the average CPO price (which is calculated using international and local CPO prices) drop below USD $750 per metric ton, the export tax is scrapped. In early September, Malaysia had already implemented a zero CPO export tax.

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On 9 November 2014, Indonesia Investments released the latest edition of its newsletter. This free newsletter, which is sent to our subscribers once per week, contains the most important news stories from Indonesia that have been reported on our website in the last seven days. Most of the topics involve economic matters such as GDP growth in the third quarter of 2014, October inflation, higher subsidized fuel subsidies, Islamic finance, unemployment, the IPO of Blue Bird, a crude palm oil update, Indonesia’s tax system, and more.

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Although realization of most components in Indonesia's state budget have improved in 2017, tax revenue realization and the management of energy subsidies remain the two big challenges for the Indonesian government. Southeast Asia's largest economy again failed to meet its tax revenue target last year. Per 31 December 2017 it collected IDR 1,151.5 trillion (approx. USD $85.3 billion) in tax revenue, only 89.74 percent of the target (excluding customs and excise).

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Indonesia may see a IDR 120 trillion (approx. USD $8.8 billion) tax shortfall in 2017. The Indonesian government set a IDR 1,472.7 trillion (approx. USD $109 billion) tax revenue target (including customs and duties) in full-year 2017. However, up to 15 December only IDR 1,211.5 trillion has been collected. Traditionally Indonesia delivers a tax shortfall at the end of the year. This is expected to continue in 2018.

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Every year Indonesia's Tax Office adjusts the excise tax on tobacco products. The adjustment is always made in consideration of the central government's tax revenue targets as well as the input of specific stakeholders (including pro-health lobby groups, or groups that defend the interests of tobacco manufacturers or farmers).

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Although the amount remains a secret, the government of Indonesia and Alphabet's Google finally managed to reach an agreement on the tax settlement after a long dispute that started in mid-2016. The news was confirmed by Indonesian Finance Ministry Sri Mulyani Indrawati. The dispute started because Indonesian authorities felt the so-called "over-the-top content" giants, referring to those companies that deliver content through Internet, deliberately did not set up permanent establishments in Indonesia in order to avoid taxes. Besides Google, other examples are Yahoo, Facebook and Twitter.

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The government of Indonesia listened to the criticism that emerged after it decided to set a rather low threshold for bank accounts that are to become subject to the automatic bank information exchange program. Through Finance Ministry regulation PMK No. 70/PMK.03/2017 Indonesia's tax authorities obtain access to information on accounts held at financial institutions, including bank accounts. This new regulation makes it possible to check whether tax payers indeed fulfill their tax obligations.

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There exists some resistance against the Indonesian government's recently announced regulation that gives tax authorities access to information on accounts held at financial institutions, including bank accounts. The regulation aims to contribute to a more transparent financial system as well as to boost the government's tax revenue realization (tax evaders will need to be more careful now authorities can monitor private and corporate bank accounts).

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Indonesia's Tax Office now has more power to check whether people and companies indeed pay taxes. Last week the Indonesian government basically scrapped the existence of banking data secrecy by introducing a new regulation that gives the nation's tax authorities access to information on accounts held at financial institutions, including bank accounts. The new regulation should contribute to a more transparent financial system and boost the government's (much-need) tax revenue realization. However, Indonesian parliament still needs to approve the new regulation.

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Indonesia's tax amnesty program ended on 31 March 2017, so now it is time to take a look at the results. Although Indonesia's amnesty program has been labelled as one of the most - if not the most - successful amnesty programs ever around the globe (in terms of asset declarations), there is plenty of room for disappointment. Based on data from Indonesia's Tax Office, less than one million Indonesians joined the program. For many nations this would be a great number. For Indonesia this number means tax evasion remains rampant, implying the government misses out on much-needed tax revenue.

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Indonesia's tax amnesty program will end soon. The nine-month program was designed to finish on 31 March 2017. Although the program has become the world's most successful tax amnesty program, it will fail to solve Indonesia's tax revenue collection problems. And with tax revenue being the largest source for public spending capacity, low tax compliance in Southeast Asia's largest economy obstructs more rapid development of the Indonesian economy.

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Indonesia's budget deficit in 2016 is estimated to have reached 2.46 percent of the nation's gross domestic product (GDP), below the government's forecast of 2.7 percent of GDP and at a safe distance from the legal cap of 3.0 percent of GDP that is stipulated by Indonesian law. This is a positive matter that is supported by modestly growing tax revenue. In full-year 2016 tax revenue realization reached IDR 1,105.2 trillion (approx. USD $83 billion), only 81.6 percent of the target that was set in the Revised 2016 State Budget (APBN-P 2016) but slightly higher than tax revenue realization in the preceding year.

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