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View all search resultsAnalysis: Indonesia’s digital tax: Welcome, but not enough
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A customer shops on the Tokopedia online market place on his mobile phone on May 4. (Antara/Puspa Perwitasari)
H
ashim Djojohadikusumo's recent remarks about tapping the Rp 10,000 trillion shadow economy have renewed attention on the government's efforts to expand digital tax collection. While the measure could generate additional revenue, it is unlikely to address the structural weaknesses underlying Indonesia's fiscal challenges.
The country’s fiscal problems are real. Its tax-to-GDP ratio is low for an economy of its size, and the latest budget figures show that extractive industries account for a substantial share of tax revenue. Compounding the problem is a large informal sector comprising many small businesses whose revenues fall below the tax threshold, as stagnant job creation pushes more people into informal employment.
With a weak labor market, flagging consumer confidence and recent capital outflows, can expanded digital tax collection sustainably fund President Prabowo Subianto's costly signature programs?
Digital tax is not new to Indonesia. It was first introduced in 2020 to narrow the tax gap between conventional and digital businesses and generate additional revenue to support the government's response to the COVID-19 pandemic.
The policy introduced value-added tax on intangible goods and services purchased from foreign suppliers through selected digital platforms that were appointed to collect the tax. However, implementation remained incomplete, as the system focused on major platforms while leaving others outside its scope.
Driven by growing fiscal needs to finance major programs, the government introduced the tax collection system for offshore digital transactions (SPP-TDLN) in September after a test period. This was the mechanism Hashim referred to in his remarks about taxing the shadow economy. Under the SPP-TDLN, digital tax collection is shifted to banks and payment service providers.
While the new system could enable the government to capture a larger share of cross-border digital transactions, it would merely be a stopgap measure against fiscal pressures unless a stronger domestic tax base is developed.
