Finance Minister Sri Mulyani Indrawati highlighted the government’s intention to tap into the vast, untaxed potential of the underground economy at a recent meeting with the House of Representatives. Tasked with leading this ambitious project is Deputy Finance Minister for Revenue Anggito Abimanyu, who is responsible for designing strategy and identifying new revenue streams from the underground economy.

This initiative aligns closely with the President’s vision to bolster tax revenue from previously overlooked sectors, signaling a bold step toward broadening Indonesia’s tax base.

Edgar L. Feige (1979) conceptualizes the underground economy as comprising economic activities that evade formal oversight. This includes the illegal economy (criminal activities like trafficking in stolen goods), the unreported economy (hiding income to avoid taxes), the unrecorded economy (income absent from government statistics) and the informal economy (income from unofficial channels).

The World Bank estimated Indonesia’s underground economy, a vast, hidden reservoir flowing beneath the surface, at 21.76 percent of gross domestic product (GDP) in 2015. University of Indonesia researchers Kharisma and Khoirunurrofik ventured even deeper into this shadowy terrain, valuing its currents at around Rp 1.968 quadrillion (US$127 billion).

Channeling this concealed wealth into the formal economy offers a powerful opportunity to expand tax revenue for fueling essential public services and ensuring that prosperity reaches every corner of the nation.

However, these figures could be a mirage. To tax the underground economy, the government would be essentially legitimizing, or at least granting legal certainty to, these murky activities.