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Tax reforms crucial for RI, says World Bank
Tax collection remains a big challenge for the government to realize its ambitious infrastructure projects and, therefore, it needs to stick to its planned reforms, according to the World Bank (WB)
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ax collection remains a big challenge for the government to realize its ambitious infrastructure projects and, therefore, it needs to stick to its planned reforms, according to the World Bank (WB).
WB lead economist Ndiame Diop said the country's infrastructure projects depended greatly on tax policies and its revenue collection.
'This is a big challenge because tax revenues are a major funding source to run the projects,' he said on Thursday during the launch of the WB's latest Indonesia Economic Quarterly (IEQ) report.
The government has stated that infrastructure is one of the key focuses of President Joko 'Jokowi' Widodo's leadership.
It expects to develop numerous infrastructure projects, estimated to cost more than Rp 900 trillion (US$65.98 billion) between 2015 and 2019.
At least Rp 118.5 trillion-worth of basic infrastructure projects have been prepared for this year and financing is expected to come from both the private sector and government, with the latter counting on tax revenues among other sources for funding.
However, according to unpublished tax data from the Finance Ministry that is cited in the report, the government reaped only Rp 801 trillion in tax revenues ' including from customs and excise ' by the end of September, equal to 58.6 percent of this year's revenue forecast.
The forecast itself has been lowered to Rp 1.37 quadrillion from the previous estimate of Rp 1.49 quadrillion within the 2015 revised state budget as a result of the ongoing economic slowdown.
The data also reveals that income tax (PPh) stood at Rp 397 trillion, or 58.5 percent of the forecast, while revenues from value-added tax (VAT or PPN) amounted to Rp 272 trillion or 54.6 percent of the forecast.
The government previously said that it anticipated a Rp 120 trillion shortfall in tax revenues, but recently it said that it was now expecting a steeper shortfall of Rp 150 trillion.
Diop said that it was crucial for the government to continue honing its tax administration and information technology (IT) system to improve its overall tax revenues.
'The big elephant in the room is to improve the IT system. That's how you can increase [tax] compliance, but that also depends on access to third party data,' he said.
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'For example, to do really good auditing, you want to make sure that banks will disclose their information to you. You make sure that the land agency will disclose its information to you, then you can cross-check the information and get people that should pay to pay.'
The WB lauds several measures that the government introduced earlier this year to boost the investment climate and spur domestic consumer spending, including in the form of tax allowances and tax holiday incentives.
Meanwhile, the WB has also urged the government to diversify export products in anticipation of a widening current account deficit (CAD) in 2016.
Diop said that the CAD was poised to widen as economic growth was expected to pick up next year.
'With more robust economic activities, you will want to import more and that will surely influence the CAD. One way to offset that is by diversifying exports, not to rely on raw commodities,' he said.
In its latest IEQ, the WB predicts that economic growth will increase to 5.3 percent in 2016 from its estimate of 4.7 percent in 2015.
Finance Minister Bambang Brodjonegoro, who attended the IEQ launch, said that Indonesia was looking to adjust its exports to China, which is one of its major trading partners, shifting the balance of products to consumer goods from basic commodities.
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