Following the general provision bill, the income tax and value-added tax bills are next in line for a comprehensive reform of the tax code. It is important, however, that before the debate on tax reform begins in earnest to clear up some confusion so the actual debate on the law can really revolve around the most important issues.

The number-one issue to be clear about is the reason for tax reform. To go with full reform, there should be no doubts that the current system is broken.

For 11 years from 2001 to 2011, revenue collection on average reached 99 percent of the government’s estimate. From 2012 to 2016, however, revenue collected by the central government had fallen to an average of 90 percent with the biggest shortfalls occurring in the last two years, which saw revenue fall to about 83 percent of the government’s estimate.

This partly reflects the aggressive posture by the current administration, but this big gap in collection also exposes a more fundamental truth: the capacity of the current tax system is unacceptably low. The abysmal performance of Indonesia’s tax system is made even more apparent when one compares Indonesia’s tax ratio (defined as tax revenue as percentage of gross domestic product (GDP)) to that of other countries.

Unfortunately some people, including some members of the House’s Finance Commission and even top tax officials, who will decide on the tax reform bills, appear to underestimate the severity of the problem by insisting that such comparisons are unfair.

This is a serious issue because if the magnitude and gravity of the problem are underestimated, lawmakers might unwittingly promote a partial reform plan that does not go deep enough to address the fundamental problems of the current tax system.

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