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Jakarta Post

A comprehensive tax reform

  • Adelia Pratiwi and Andi Kuncoro

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Jakarta   /   Mon, June 10, 2019   /  12:18 pm
A comprehensive tax reform A building of the Directorate General of Taxation in Jakarta. (kontan.co.id/File)

When hearing a proposal for tax reform, people tend to expect tax rate cuts. This standpoint, even if it is not without solid reasoning, should be challenged as it does not cover a fair and comprehensive assessment of fiscal policy effectiveness. Tax rates could be the main reason for Indonesia’s low and declining tax-to-domestic-gross-product (GDP) ratio from 13.61 percent in 2013 to 11.42 percent in 2018. Theoretically, as articulated by the so-called Laffer Curve, the relationship between tax rates and tax revenue can be illustrated by a bell-shaped curve. It correlates positively in the beginning, but after reaching a point, a higher tax rate can be counterproductive to tax collection. The latter is suggested as the phase Indonesia is currently in. Add the fact that Indonesians’ income per capita has been growing during the same period, that rationale is not so wron...

Disclaimer: The opinions expressed in this article are those of the author and do not reflect the official stance of The Jakarta Post.