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Can we sustain a tax-free economy?
Tax collection remains the most straightforward way to support the budget structure needed to finance the development of human resources, infrastructure and welfare.
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Tax compliance: People wait for their turn to pay the annual vehicle ownership tax at the vehicle document registration center in ITC Depok mall in Depok, West Java, on Nov. 10, 2020.
(JP/Ricky Yudhistira)
T
axation has appeared in almost every narrative throughout the history of our civilization since it was first recorded in Ancient Egypt over five millennia ago. Appearing in various forms and names, it generally has one fundamental goal: to fund public budgets needed to support the overall functioning of the economy.
However, voluntary taxation certainly is not an effortless thing to establish, even to the point of still being a debated issue regarding its reliability. In 2020 alone, Indonesia's tax ratio, which accounted for 10.1 percent of gross domestic product (GDP), was the third lowest in the Asia-Pacific region, far below the regional average of 19.1 percent.
Nevertheless, the national economy continued to grow strongly by 5.3 percent in 2022, exceeding the average growth rate of other developing countries by 4.4 percent, as the International Monetary Fund reported. This seemingly uncorrelated relationship between the two prominent factors should raise an important question: how necessary is taxation in our economy?
Promoting development means making taxation a prioritized fiscal policy. This is not without reason. To this day, tax collection remains the most straightforward way to support the budget structure needed to finance the development of human resources, infrastructure and welfare, as also stated by the World Bank.
In the 2023 state budget, tax revenue is still the largest source of state revenue, accounting for 82.1 percent of the total receipts, up from 77.5 percent in the previous year. This situation not only applies in Indonesia, but also in almost all other countries. In Singapore, tax revenue is a fundamental contributor accounting for 90.7 percent of total revenue, higher than the 74.7 percent in Thailand and 75 percent in Malaysia.
Without taxation, we would have to find a better alternative to replace the loss of state revenue, which is expected to amount to Rp 2.02 quadrillion (US$134.7 billion) in 2023. If debt financing is chosen, the budget deficit value will sharply increase by 337.8 percent, making this option the last resort. Alternatively, the government might pursue privatization by giving the private sector greater opportunities to manage the public sector.
However, this approach could create a greater financial burden on the public than paying taxes.
