Indonesia’s Tax Ratio Still Low Compared to ASEAN and G20 Countries

Finance Minister, Sri Mulyani

Minister of Finance Sri Mulyani Indrawati has highlighted a concern regarding Indonesia’s tax ratio in relation to its gross domestic product (GDP), stating that it remains relatively low compared to other countries. She made this observation during the Mandiri Investment Forum 2024 held on Tuesday (5/3/2024).

According to Sri Mulyani, Indonesia’s tax ratio is notably lower when compared to various countries in the ASEAN region, the OECD, and the G20 nations. This issue is multifaceted, influenced by several factors within the Indonesian economic landscape.

One contributing factor to the low tax ratio is the existence of untaxed economic sectors, particularly those associated with poverty alleviation efforts. Sri Mulyani mentioned that Indonesia exhibits a high incidence of tax-exempt income compared to wealthier neighboring countries.

Moreover, the predominance of the informal sector in Indonesia further complicates tax collection efforts. Many entities operating within this sector benefit from tax exemptions, particularly in areas such as healthcare and education.

Sri Mulyani also highlighted the challenge of tax base erosion, emphasizing the need for serious government intervention to address this issue. Despite facing a significant decline due to the Covid-19 pandemic, tax revenue has shown signs of rebounding.

Given the persistently low tax ratio, Sri Mulyani assured that the government remains committed to enhancing tax collection efforts. In 2023, Indonesia’s tax ratio stood at 10.31%, indicating room for improvement.

To bolster tax revenue, the government has implemented various reforms aimed at optimizing tax collection processes. However, Sri Mulyani stressed the importance of ensuring that these efforts do not disrupt ongoing economic growth momentum.

She emphasized the necessity of striking a balance between tax collection objectives and maintaining a conducive environment for economic development. This is particularly crucial amidst the prevailing global economic uncertainties and fragility.

Furthermore, Sri Mulyani underscored the importance of international cooperation in optimizing tax revenue. Initiatives such as the automatic exchange of tax information (AEOI) scheme facilitate collaboration among countries to combat tax evasion and enhance transparency.

Additionally, Sri Mulyani highlighted the collaborative efforts within the OECD/G-20 Inclusive Framework on BEPS to address global tax challenges. The adoption of the Two-Pillar Solution signifies a collective commitment to fostering a fair and efficient international tax system.

Overall, Sri Mulyani’s remarks underscore the government’s determination to elevate Indonesia’s tax ratio while navigating complex economic realities and fostering international cooperation in tax matters.