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Indonesian Government Agrees To Raise Tax Ratio Target

by Mary Swire,, Hong Kong

26 September 2012

In a recent meeting, the Indonesian government, represented by Minister of Finance Agus D.W. Martowardojo, and Commission XI of House of Representatives (DPR), which has responsibility for finance, finally agreed to increase the country’s tax ratio target to 13.5% of gross domestic product in 2013.

While Agus confirmed that the Ministry of Finance would, of course, continue to look for improvements to tax compliance, he said that the 13.5% target would be difficult to achieve next year, given that global economic uncertainty was affecting the Indonesian economy, particularly its export sector.

“It is true that international institutions, such as the World Bank and IMF or other research institutions, always remind us of the large potential improvements possible in tax collection,” he stated. “However, it requires commitment and time to realize it.”

Agus disclosed that the government had budgeted for a tax ratio of 12.75% this year, after 12.3% last year, and 11.8% and 11.3% in 2011 and 2010, respectively. In the previous budgetary calculations, the 12.75% tax ratio had translated into projected tax revenues of around IDR1,180 trillion (USD123.5bn). To reach the new 13.5% ratio, he indicated that the Ministry would have to find another IDR120 trillion of taxes.

The target will be even more difficult to achieve if the government’s plan to increase income tax thresholds significantly is also introduced next year, and Agus felt that the only way for it to be fulfilled will be to raise the level of registered taxpayers in the country, whether individuals or businesses.

Indonesia’s President Susilo Bambang Yudhoyono has already confirmed that the government is looking to boost tax revenues through improved tax compliance to widen the tax base, and, during the past year, the Ministry of Finance has launched a national tax census with the aim of increasing the number of Indonesian taxpayers.

It has been previously noted that the country’s tax base presently consists of only 7.7% of its potential individual taxpayers, equivalent to 8.5m people out of a possible 110m employees, and only 3.8% of its potential corporate taxpayers, or some 460,000 businesses out of 12m registered firms.

The government is also looking to target specific sectors, such as domestic trading, where it considers that, while the sector has substantial turnover, traders are reluctant to pay their taxes.

TAGS: individuals | compliance | tax | economics | business | tax compliance | budget | tax thresholds | ministry of finance | Indonesia

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