Over the past several years, the Indonesian government has initiated a number of policies intended to expand its tax base. An expanded tax base would create a higher fiscal space that could be used to fund development programs, especially for infrastructure development.

In the National Medium Term Development Plan 2015-2019, the government set an ambitious revenue state target of which tax income is expected to contribute to 86.1 percent. In addition, the tax ratio (tax receipts against gross domestic product) is also projected to increase to 15.6 percent.

In order to meet these targets, the government should introduce more policies beyond tax amnesties. One of the policies that should be on the table is one designed to prevent profit shifting conducted by multinational companies (MNCs).

The presence of MNCs brings positive impacts for host economies through job creation, value added and transfer of technology. However, some MNCs take advantage of their multinational presence by shifting profits and income from cost-center countries to low-tax (profit-center) countries.

While the exact figure of revenue losses from such activities are difficult to estimate, the losses can reach more than Rp 200 trillion (Reuters, Feb. 24, 2015).

Indonesia is not the only country that suffers from such activities. Even developed countries with advanced tax administrations are struggling to tackle this problem. Therefore, over the last several years, G20 countries have endorsed a new standard on tax transparency through the Action Plan on Base Erosion and Profit Shifting (BEPS) launched in 2013.

Besides this initiative, proposals calling for greater transparency in economic activities have been echoed in public debate. One crucial issue for transparency is the disclosure of beneficial ownership information.

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