The government projected its budget deficit to reach Rp 310.8 trillion (US$22.28 billion) this year, equal to 1.93 percent to GDP, slightly higher than the Rp 296 trillion deficit targeted in the 2019 state budget, which would have been 1.84 percent of GDP.

“It [the deficit] will be slightly higher than targeted, although the deviation is not too large,” said Sri Mulyani in Jakarta on Tuesday. “This was caused by a sluggish trend in state revenues amid pressures on the economy.”

Sri Mulyani said the tax and customs authorities would always try to seek a balance between maintaining the positive momentum in the economy, conducting enforcement measures and ensuring the compliance of economic agents. The government would not look to revise the state budget this year, she added.

The Finance Ministry’s Taxation Director General Robert Pakpahan separately said the tax office was projected to only collect about Rp 1.43 quadrillion in revenues this year, 91.1 percent of the Rp 1.57 quadrillion target set in the 2019 budget.

Robert said weak commodity prices, the rupiah’s stronger exchange rate compared to the macroeconomic assumption in the 2019 budget, a drop in imports and accelerated tax refund procedures have contributed to the lower revenues collected by the tax authority this year.

Tax revenues, which also take into account revenues from customs and excise, was projected to reach Rp 1.64 quadrillion this year, data from Finance Ministry revealed. They are about Rp 143 trillion short of the Rp 1.78 quadrillion targeted by the government in this year’s budget.

As of the first half of this year, the tax authority had collected Rp 603.34 trillion in tax revenues, which was up by 3.75 percent year-on-year (yoy), with sluggish revenue growth recorded across all types of taxes.

The corporate income tax — which, along with the value added tax (VAT), is the main revenue contributor — was booked at Rp 123.97 trillion in the first half of this year, only growing by 3.4 percent yoy in the first half of this year, slower compared to the 23.8 percent yoy growth recorded over the same period last year.

The government’s policy to accelerate tax refund procedures has also affected the revenues from the VAT, which was recorded at Rp 123.5 trillion in the first half of this year, a negative 2.9 percent yoy compared to the first half of 2018.

Indonesian Chamber of Commerce and Industry (Kadin) deputy chairwoman for international relations Shinta
Kamdani confirmed that there were indications of an economic slowdown as lingering uncertainties because of an ongoing trade spat between the United States and China drove down demand for exports and foreign investments.

She added that domestic consumption, the primary driver of GDP growth in the country, was weaker than expected in the second quarter of this year and government spending was largely concentrated on sectors that were related to the elections.

“All indicators that drive the economy, they showed signs of slowdown. So, it is only natural that the tax revenue [growth] also followed the same trajectory,” said Shinta.

The sluggish tax revenue collection this year also raised questions over the government’s plan to slash corporate income tax from 25 percent to 20 percent as such a move would lead to less tax collected by the government.

Center for Indonesia Taxation Analysis executive director Yustinus Prastowo said that while the tax cut was expected to spur economic activities in the long run, the possible tax cut would bring down revenues in the short run.

“The trade-off effects cannot be swift,” said Yustinus.

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