Finance Minister Sri Mulyani Indrawati maintained that the fiscal deficit, projected at 1.84 percent of the gross domestic product (GDP), or Rp 296 trillion (US$20.96 billion), could still support economic growth, despite signs of a slowdown in tax revenue growth.

“As of today, we still assume that the deficit will be close to the [number stated in the 2019] State Budget Law, which we consider adequate to support [economic] growth,” Sri Mulyani said in Jakarta on Friday.

The minister added that the government would look at all indicators in the budget, arguing that, while tax revenue may not reach the target, state spending was also expected to be below the budget assumption.

“For example, if our revenue does not reach the target, we will see that spending, some of which is influenced by the oil price, such as the [fuel] subsidy, could also be lower [than projected],” said Sri Mulyani, arguing that lower subsidy spending would compensate for lower revenue collection by the fiscal authorities, and the budget deficit would therefore remain near the budget projection.

The tax authorities collected Rp 496.65 trillion in revenue from January to May this year, marking an increase of 2.43 percent year-on-year (yoy). The revenue growth was significantly slower than the 14.2 percent yoy booked in the same period last year.

The government aims for Rp 1.57 quadrillion in tax revenue this year, as outlined in the 2019 state budget.

Overall state revenue, which also includes receipts from customs, nontax revenue and grants, has reached Rp 728.5 trillion as of May, which is up 6.2 percent yoy.

Yoy growth in state revenue was slower than growth in state spending, which was up 9.8 percent yoy as of May, with the government having spent Rp 855.9 trillion in the first five months of the year.

Fuel subsidy spending amounted to Rp 23.5 trillion as of May, lower than the Rp 30.4 trillion disbursed over the same period last year.

Only the sectors of trade as well as transportation and warehousing have booked higher tax revenue growth so far this year at 10 percent yoy and 25.1 percent yoy, respectively, as of May.

Revenue from the manufacturing sector — the main contributor to tax revenue — dropped 2.7 percent yoy as of May, with the tax authority collecting only Rp 132.35 trillion over the five-month period. The mining sector also contributed 12.4 percent yoy less in tax revenue growth as of May, a stark contrast to 85.4 percent yoy tax revenue growth seen over the same period last year, due to lower corporate income tax payment as well as high tax refunds.

Sri Mulyani said the sluggish growth of tax revenue indicated a potential slowdown in the economy, and therefore she urged the private sector and government institutions, including regional administrations, to be cautious in their outlook.

Center for Indonesia Taxation Analysis (CITA) executive director Yustinus Prastowo said weak exports and imports, coupled with declining commodity prices compared to last year, had hit tax revenue.

He urged the government to be cautious in managing the budget, as the risk of a revenue shortfall was considerable. Under the current trend, CITA projected the government may face a revenue shortfall between Rp 127.86 trillion and Rp 170.26 trillion.

“The government should quickly formulate strategies and concrete policies to anticipate this [revenue shortfall],” said Yustinus.

A partner at the Danny Darussalam Tax Center, Bawono Kristiaji, said the tariffs war between the United States and China had disrupted global supply chains and impacted the performance of the manufacturing industry, which was among the top contributors for tax revenue.

Bawono said the government had to expand the tax base and improve the administration for collecting taxes to contain the shortfall in revenue.

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