OECD Analysis for Indonesian Taxation

OECD  issued an analysis for Indonesian taxation in a newly published report, RevenueStatistics in Asian Countries Trends in Indonesia and Malaysia 1990-2012, which includes not only the statistics of the revenue,  but also policy challenges which could be used by the public to understand the current situation and consider possible solution to solve taxation issues.

Below is the summary of the new report (which also consists of Malaysian taxation):

-In 2012, in Indonesia the tax burden increased to 12.9%

-taxes on incomes and profits represent 44% of tax revenues in Indonesia and this compares with 30% in both Japan and Korea and 34% for OECD countries.

-revenues from corporate account for 70% in Indonesia.

-tax revenues as a proportion of national incomes in Indonesia and Malaysia are substantially lower than in Korea and Japan. In 2011, the ratios in Indonesia and Malaysia ranged from 12-16% compared with 26-28% in the two countries that are OECD members. The OECD average was higher still at 34.1%.

-there were increases of 4 percentage points in Indonesia (9% to 13%) and Korea (23% to 27%) and of 2 to 3 percentage points in Japan (27% to 29%) and Malaysia (14% to 17%). This compared with the OECD average estimated at 34.6% in 2012 which represented a marginal decline compared with 2000

Previously, in 2012, OECD also made a report about Indonesia, OECD Economic Survey, which include taxation issues, among other things, as follows:

-Key policy recommendations for taxation :

Move the resource-sector tax regime closer to a system of taxing rents. Review export taxes, considering their implications for the whole economy, including international trade. Phase out exemptions from VAT. Revisit corporate tax holidays granted to firms in “pioneer industries”.

 Enhance efforts to bring the self-employed into the tax net, including by reducing temporarily penalties for previous non-compliance for first-time taxpayers only. Increase resources devoted to auditing high-risk and affluent taxpayers, and make more use of third-party information to assess tax liabilities.

- Recommendations on raising tax revenues

Broadening the tax base

• Move the resource-sector fiscal regime closer to a system of taxation of rents.

• Review export taxes, considering their implication for the whole economy, including international trade.

• Phase out exemptions from VAT.

• Revisit corporate tax holidays granted to firms in “pioneer industries”.

Improving tax compliance

• Enhance efforts to bring the self-employed into the tax net, including by reducing temporarily penalties for previous non-compliance for first-time taxpayers only.

• Increase resources devoted to auditing high-risk and affluent taxpayers, and make more use of third-party information to assess tax liabilities.

The Indonesian government is concerned since the tax ratio has been relatively low and there is no significant increase on the tax ratio. 

The other concern is about the independence of tax authority which lead to a question, is it a must for tax authority to become an independent institution which be directly below president and no longer part of Ministry of Finance. The idea is to establish, at least, semi-autonomous tax authority which will have more authority, e.g. human resource and recruitment, policy making etc. as discussed in here