The Jakarta Post
Indonesia’s 2020 state budget deficit may further widen to 2.8 percent of gross domestic product (GDP), much higher than the government’s target, as tax reforms would result in lower revenue collection, economists say.
Institute for Development of Economic and Finance (Indef) economist Tauhid Ahmad said the budget deficit may reach Rp 486 trillion this year, compared with the government’s target of Rp 307.2 trillion, which represents 1.76 percent of GDP.
“The government is being too optimistic because the [tax revenue] growth assumption of 13 percent is too high considering realized tax revenue grew by only 8 to 9 percent each year,” Tauhid told reporters in Jakarta on Thursday.
Global economic uncertainties and the government’s planned tax reforms through an omnibus bill on taxation – which would lower and relax taxes on corporations and individuals – would lead to lower-than-expected tax collection.
Risks stemming from the rapid spread of the Wuhan coronavirus, which has closed businesses and cities temporarily in China, the United States' economic stagnation and geopolitical risks from climate change to Middle East conflict would affect global demand and commodity prices, economists said.
Domestically, the government’s planned tax reform through the omnibus bill and super tax deductions, among other things, could widen the nation’s tax revenue shortfall, Tauhid said, adding: “This will cause the country to compensate for the lost tax revenue with debt.”
The state budget deficit in 2019 totaled 2.2 percent of GDP, higher than the government’s 1.8 percent target because of a revenue shortfall of about Rp 207.9 trillion. The government collected Rp 1.96 quadrillion in state revenues last year, less than its target of Rp 2.16 quadrillion.
The tax office collected Rp 1.33 quadrillion in tax revenues last year, 84.4 percent of the full-year target, causing a shortfall of Rp 245.5 trillion, the worst in at least the last five years.
Separately, Finance Minister Sri Mulyani Indrawati said that the sweeping tax reforms through the omnibus bill, which is to reduce corporate income taxes and make internet giants pay taxes, would await approval by the House of Representatives before full implementation.
“Though we cut the corporate tax rate, we will widen our tax base and maximize our spending so that there is no economic shock,” Sri Mulyani told reporters on Wednesday. “This must be maintained due to the global economic slowdown.”
Sri Mulyani previously said the government would reduce corporate income tax from the current 25 percent to 22 percent in 2021 and then to 20 percent in 2023.
The proposed changes would also make internet companies operating in Indonesia pay a 10 percent value added tax (VAT) regardless of where they are based. The government’s planned tax reforms in the omnibus bill on taxation also include relaxing income tax for Indonesians and foreign expatriates, as well as eliminating dividend taxes.