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Bumpy road to achieving higher tax ratio
Indeed, improving the tax-to-GDP ratio requires not only better administration but also better tax policy.
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The Directorate General of Taxation (DGT) has released its latest report for 2017 fiscal year, showing a meager 4-percent growth in tax collection over the previous year. (Shutterstock/File)
T
he Directorate General of Taxation (DGT) has released its latest report for 2017 fiscal year, showing a meager 4-percent growth in tax collection over the previous year. If the tax amnesty program, which pertains to pre-2016 taxes and other nonrecurring revenues, were excluded, the growth figure shoots to 16 percent.
Considering that the nominal growth of the economy in 2017 was only around 9 percent, the normalized revenue growth rate is not too bad.
However, what really matters for the development effort is not the growth in revenue but the level of collection, and on this count the revenue performance was surely not a cause for a celebration.
The revenue mobilization effort, spearheaded by the DGT, could only collect Rp 1.15 quadrillion (US$85 billion), or merely 8.5 percent of gross domestic product (GDP). If we include revenue from excise and other sources to this calculation, the tax-to- GDP ratio increases slightly to 9.9 percent. By any benchmark, this level of performance is decidedly low.
The tragic thing about this weak revenue collection, which has been the case for the last decade, is that it acts as a hard constraint to the government’s capacity to expand its expenditure priorities, which are needed to boost the economy to the next stage in its development, and to protect millions of families from falling further into poverty and to halt the rising tide of inequality.
As many observers have pointed out, there are lots of small and big changes that can be made to achieve this goal. However, not all solutions are created equal.
Some require many years of careful planning and execution before they start producing any results, but once operational they will potentially be game changers. Other reform proposals will almost immediately produce results, but likely not significant enough to make any difference.
