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Difficult to achieve Indonesia’s tax-to-GDP ratio target in 2017

Difficult to achieve Indonesia’s tax-to-GDP ratio target in 2017

 

JAKARTA: Her view is based on: (1) the country’s limited tax revenue collection so far this year, (2) Indonesia’s structural bad track record in terms of achieving tax revenue and ratio targets, and (3) the fact that we are approaching the year-end, hence there remains limited time to boost tax revenue.

Indonesia’s tax revenue realization reached IDR 770 trillion (approx. USD $57 billion) up to the end of September 2017, or a modest 60 percent of the full-year target. If we assume that Indonesia’s nominal gross domestic product (GDP) reaches IDR 13,613 trillion, then the tax-to-GDP ratio currently stands at 5.7 percent so far this year. With only three more months to go, Soelistianingsih expects the ratio to fall well below the 2017 target of 11.5 percent, although the ratio may show a slight improvement from last year.

Over the past five years, Indonesia – on average – only achieved 83 percent of its annual tax revenue target. If we assume that Southeast Asia’s largest nation will again only achieve 83 percent of this year’s tax revenue collection target (set at IDR 1,283.6 trillion in the State Budget), then Indonesia will collect a total of IDR 1,065.5 trillion worth of tax revenue (excluding customs and other import duties!) at the year-end, which would translate to a very bleak 7.8 percent tax ratio. Therefore, it is important that this year’s tax revenue target is far more in line with actual realization. Only then we will see the tax ratio touching around 9 percent of GDP (and going into a double-digit figure when including customs and other import duties).

However, with Indonesia’s retail sales still in a rather bleak state, there are major concerns whether tax revenue realization can come close to the target this year. On a positive note, Bank Indonesia’s July-September 2017 retail sales reports show an improvement on a month-on-month basis (although on an annual basis growth remains slowing). According to Soelistianingsih, Indonesia’s retail sales are experiencing the U-curve and have already passed beyond the lowest point in this curve, hence there is some room for optimism, especially as the month of December should show a boost amid Christmas and New Year preparations.