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[INSIGHT] Tax digitalization needed to aid pandemic relief, boost recovery
Tax digitalization can have positive ancillary effects as well, especially via digital tax payments, such as greater financial inclusion, particularly for women and marginalized groups, and accelerated formalization of the economy.
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A worker attaches a notice on an advertisement billboard on Jl. Juanda in South Tangerang, Banten, in this photo file. According to the tax office, the advertiser has not registered the billboards for taxation. (JP/epost-robot)
T
ax system digitalization will provide a potent second shot in the arm to accompany recent COVID-19 vaccine breakthroughs as Indonesia strives to provide relief from the pandemic’s devastating impact and pursue post-pandemic recovery and growth.
Digitalization is not the ultimate objective. Instead, it is a tool to enable the Directorate General of Taxation (DGT) to fulfill its mission better.
A report by the United Nations-based Better Than Cash Alliance finds that digitalization of tax systems in emerging markets, when coupled with complementary administrative reforms, can raise annually an additional US$300 billion worldwide.
This can help close much of the fiscal gap that threatens achievement of both the UN’s Sustainable Development Goals and Indonesia’s vision to become a high-income nation by 2045.
The government has been extremely proactive in responding to the pandemic with a package of fiscal measures totaling approximately Rp 700 trillion ($49.6 billion), equal to roughly 5 percent of the 2019 gross domestic product (GDP), which has certainly helped to mitigate COVID-19’s impact on vulnerable households and businesses.
But this extraordinary fiscal response has raised the budget deficit to an unprecedented level of 6.1 percent of GDP, whereas Indonesia is known for its strict fiscal discipline in maintaining the deficit below 3 percent of GDP.
The Budget Law has permitted budget deficits to remain above 3 percent through fiscal year 2022, but this forbearance ends in 2023, after which the deficit must revert to less than 3 percent of GDP.
