The administration will undershoot its Rp1,294tn ($96.8bn) goal for tax collection by as much as Rp120tn, according to finance minister Bambang Brodjonegoro, who has led an aggressive push to broaden the tax base since taking office in October.
“What we need to improve is the compliance,” he said. “Growth doesn’t translate into tax revenue in a proportional way, which means there is a big problem with our tax administration.”
Mr Brodjonegoro estimates that there are just 27m registered taxpayers in the country out of a population of 255m, with 10m of those paying income tax in full every year. There is much room to improve compliance, he said, with widespread tax evasion across the spectrum from individual workers to big business.
“Big companies with a big profile — their tax record is quite poor, meaning they are far from 100 per cent compliant,” the finance minister added. “There is a reason that we squeeze them.”
In its revised budget earlier this year, the new administration announced plans to raise tax collection by 30 per cent and ramp up public sector investment.
Yet, as growth slows and ministries struggle to make use of their public sector budgets, the finance minister forecasts a budget deficit of 2.2 per cent of gross domestic product this year, exceeding the 1.9 per cent target.
As part of its push to raise tax revenues, Indonesia has offered to waive penalties on unpaid taxes from the past five years for those that repay the full amount this year.
The new administration has also handed out hefty fines and arrested a series of senior executives in recent tax cases, as well as introducing electronic tax return submission in an attempt to control fraud.
“If we say we need to hold or delay the tax reform until the [economy is in a] better condition I am sure it won’t happen,” Mr Brodjonegoro added.
Economists have long said the government will struggle to raise tax collection as the Indonesian economy grows at its slowest pace since 2009, weighed down by the fall in oil and gas prices.
Recent moves to raise tax revenues could also be poorly timed as Indonesia looks to boost infrastructure investment, according to Harry Su, head of research at Bahana Securities, the Jakarta-based brokerage.
“The government’s aggressive tax drive is putting off capital expenditure, it’s putting off investment as well,” he said.
Meanwhile, plans to introduce an amnesty from prosecution on certain financial crimes including corruption and money laundering in return for repatriating assets and paying taxes on them are also being discussed, said the finance minister.
“We are not asking you whether the money is from illegal things or legal things — we don’t care as long, as you declare that as income,” the finance minister said. “The more important thing is to bring back Indonesian money onshore.”