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Jakarta Post

EDITORIAL: High tax revenue target


    The Jakarta Post

Jakarta   /   Wed, January 10, 2018   /   08:15 am
EDITORIAL: High tax revenue target The tax-to-GDP ratio remained less than 11 percent, still far below the internationally recognized 15 percent minimum threshold for stimulating economic growth. (Shutterstock/File)

Key macroeconomic indicators for 2017 in Indonesia’s fiscal consolidation, as Finance Minister Sri Mulyani Indrawati announced Monday, all showed significant improvements, with the budget deficit controlled at 2.4 percent of gross domestic product. This is lower than the estimated 2.9 percent.

Total budget disbursement hit an all-time record of 93.1 percent, with capital expenditures rising to 89 percent from 82 percent in 2016 and goods procurement to 95 percent from 85 percent. Government debts were also well controlled below 30 percent.

The biggest disappointment in the fiscal sector was tax revenues, which were still 8 percent short of the target in spite of the nine-month tax amnesty, said to be one of the world’s most successful tax pardons. The tax-to-GDP ratio also remained less than 11 percent, still far below the internationally recognized 15 percent minimum threshold for stimulating economic growth.

Businesspeople therefore raised concerns when the 2018 state budget set the tax revenue target 20 percent higher than last year’s, based on the assumption that the economy would grow 5.4 percent against last year’s 5.01 percent. The government seemed confident that the Rp 4.86 quadrillion (US$365 billion) in hidden assets taxpayers declared during the tax amnesty would significantly broaden the tax base.

But business circles and many analysts still consider the 20 percent increase in the tax revenue target too ambitious despite the larger tax base, because projected growth this year is only 5.3 percent to 5.5 percent, or a mere 0.50 percentage point higher than last year. In fact, between 2015 and 2017 when growth averaged only 5 percent, tax receipts increased by only 8.5 percent in 2015, by 3.6 percent in 2016 and 4.5 percent in 2017.

Businesspeople fear tax officials might resort to inordinately repressive measures to achieve the unusually high revenue target by focusing more on intensifying measures (“hunting in the zoo”) for registered taxpayers instead of netting new taxpayers.

True, the unrealistic tax revenue target could affect the credibility and integrity of tax officials: Unrealistically high estimates may force them to resort to any and all means to achieve the target, while unrealistically low targets could make them complacent and tempt them to pocket the revenues collected in excess of the target.

Minister Sri Mulyani seemed aware of the concern, because she assured businesspeople at Monday’s gathering in no uncertain terms that she would see to it that tax officials would not resort to threatening measures, even if the 2018 tax revenue target had been increased by 20 percent to Rp 1.62 quadrillion.

We rest assured that the target is based on an accurate tax potential map, drawn by connecting the databases and benchmarks of all tax offices across the country. Moreover, tax officials are now authorized by law to access taxpayers’ financial information (bank accounts) for taxation purposes.

Given her track record, let’s give the minister the benefit of the doubt.