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Adequate and reliable data key to raising tax revenues
Enforcement is only effective when comprehensive data is available. Similarly, taxpayers are more willing to pay their taxes if the tax office has sufficient information at its disposal.
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Number game: An official explains to a taxpayer the use of the citizenship identity number as their taxpayer identification number at Palangka Raya tax office in the Central Kalimantan capital city on March 3, 2024.
(Antara/Auliya Rahman)
O
ne of the main issues raised by president-elect Prabowo Subianto is taxation. We all know that Indonesia relies heavily on tax revenue. In 2021-2022, approximately 77 percent of state revenue sources were related to taxation.
According to the latest publication of the Organization for Economic Cooperation and Development (OECD), Indonesian tax revenues were just 10.9 and 10.4 percent of gross domestic product in 2021 and 2022, respectively. This ratio was lower than that of neighboring countries such as Vietnam (18.2 percent) or the Philippines (18.1 percent).
In his campaign, Prabowo repeatedly asserted that one of the top-priority working programs of his government would be increasing the tax ratio to 23 of GDP. One way to do this is by making the Indonesian Revenue Authority independent from the Finance Ministry.
The idea of an independent revenue authority is not new and has been discussed in Indonesia over the past decade. A decade ago, the OECD reported four organizational types. These were both single and multiple directorates under the Finance Ministry, a unified semi-autonomous body and a unified semi-autonomous body with a board where one is not better than the other.
A more important issue is voluntary taxpayer compliance. Improving compliance can be reached through two different routes: education and enforcement. Tax education is aimed at improving awareness that tax is an enabler of public facilities.
Without it, it is difficult for the government to provide services – education and health services for instance – adequately. This leads to voluntary compliance.
Enforcement, on the other hand, is based on the standard economic view of cost and benefit. The assumption is that taxpayers comply if they see that it is not worth doing otherwise.
