Equitable Tax Reform: Rebuilding Public Trust

Taxation is the primary foundation of state finances. Education, health, social protection, infrastructure development, defence and public services all depend on the state’s ability to collect revenue.

However, amidst rising fiscal needs, the public sphere is filled with complaints about an increasingly heavy tax burden, whilst a series of cases involving rogue tax and customs officials has once again unsettled the sense of justice and eroded public trust in fiscal institutions.

Indonesia’s tax challenge is therefore no longer merely about increasing state revenue, but also about rebuilding the legitimacy of the tax system. Taxation has a strong legal basis, but its success is ultimately determined by trust.

Without trust, compliance rests solely on the threat of sanctions. Conversely, when society believes that taxes are collected fairly, managed responsibly, and returned in the form of quality public services, compliance grows as a collective consciousness.

This urgency has become ever more apparent. In the 2026 draft state budget, state revenue is projected at around Rp3,208 trillion, whilst state spending reaches approximately Rp3,942 trillion, with a deficit of about 2.85% of GDP.

This situation confirms that taxation remains the backbone of fiscal sustainability as well as the primary instrument for financing the national development agenda. The challenge is not simply to raise revenue, but to build a tax system that is fair, simple, transparent and built on integrity.

RESTORING THE LEGITIMACY OF THE TAX SYSTEM

Indonesia is entering a phase of development that demands far greater fiscal capacity. Industrial downstreaming, the energy transition, food security, strengthening human resources, digital transformation, and achieving the Golden Indonesia 2045 vision all require an increasingly robust fiscal space. Tax reform should therefore be seen as a strategy to strengthen national fiscal capacity, not merely as an instrument for increasing state revenue.

If the government and the House of Representatives refine the legal framework for taxation in the future, the orientation should not stop at revenue optimisation, but also strengthen fairness, legal certainty, administrative efficiency and public trust.

The experience of various countries shows that low tax revenue is often caused more by weak system legitimacy than by tax rates. Society does not only question how much tax must be paid, but also whether the burden is shared fairly, collected professionally, and genuinely returned in the form of quality public services.

In the Indonesian context, these issues are closely tied to governance. Every irregularity involving tax officials not only causes financial losses, but also erodes the social capital of public trust. This is reflected in Indonesia’s 2025 corruption perceptions index score, which remains at 42. Strengthening the integrity of the apparatus must therefore proceed hand in hand with administrative reform.

Administrative modernisation through Coretax is a strategic step that deserves appreciation. Digitalisation enables data-driven oversight, broadens the tax base, improves efficiency, and reduces the potential for conflicts of interest. Yet technology is only an instrument. Its success is still determined by data quality, infrastructure readiness, responsive services and effective public communication.

TAXATION AS A SOCIAL CONTRACT

In a modern state, tax is not merely a fiscal instrument, but also a manifestation of the social contract between the state and its citizens. The state gains the legitimacy to collect taxes because it is obliged to provide protection, legal certainty, justice and quality public services.

This idea aligns with Adam Smith’s four principles of taxation: fairness, certainty, convenience and efficiency. Richard Musgrave viewed tax as an instrument of allocation, distribution and economic stabilisation, whilst Douglass North emphasised that credible institutions reduce transaction costs and increase compliance.

Various studies on tax morale also show that voluntary compliance is influenced more by perceptions of fairness, service quality and trust in institutions than by the mere threat of sanctions.

The tax authorities therefore need to keep transforming into a public service institution that is professional, responsive, and oriented towards taxpayer convenience. From an Islamic perspective, this principle is consistent with the values of trustworthiness, justice, transparency and the public interest in managing public funds.

LEARNING FROM GLOBAL PRACTICE

Estonia and New Zealand demonstrate that the success of a tax system is determined not by high rates, but by the quality of governance. Estonia built an integrated digital tax administration, making reporting simple and efficient. New Zealand, meanwhile, prioritises simple regulations, a broad tax base, and a service approach that encourages voluntary compliance.

Indonesia certainly cannot copy these two models wholesale. However, their universal principles are worth adopting: simple regulation, legal certainty, reliable digitalisation, apparatus integrity, professional services, and transparency in the use of state revenue. The implementation of Coretax, data-driven analytics, inter-agency information integration, and the use of artificial intelligence will only be effective if supported by credible governance. Tax reform is ultimately an institutional reform that underpins economic competitiveness as well as the sustainability of the state budget.

FROM TAX RATIO TO TRUST RATIO

Ultimately, tax reform must become an integral part of the national fiscal strategy. Strong tax revenue will widen the government’s space to finance productive investment, strengthen social protection, improve the quality of education and health, accelerate infrastructure development, and drive economic transformation towards Golden Indonesia 2045.

Indonesian tax reform therefore needs to move from a tax ratio orientation towards a trust ratio. Sustainable state revenue can only be achieved when society believes that every rupiah of tax is managed responsibly and delivers tangible benefits for development.

This reform needs to rest on five main pillars: fairness, simplicity, integrity, transparency and public value. These five pillars ensure that reform does not stop at increasing revenue, but also strengthens the legitimacy of the tax system.

In the 21st century, a state’s fiscal strength is no longer determined solely by the extent of its authority to collect taxes, but by the degree of public trust in the institutions that collect them.

A trusted state will find it easier to finance development, whilst a state that has lost trust will continue to face high costs of compliance, disputes and social resistance.

Indonesian tax reform is therefore, in essence, not merely a fiscal agenda, but also an agenda to rebuild the social contract between the state and its citizens.

An economist at Indef believes the government’s decision not to continue the tax amnesty strengthens the credibility of the tax system and encourages more sustainable tax reform.

The Indonesian Ulema Council (MUI) has issued a new fatwa concerning fair taxation.

The Director General of Taxes at the Ministry of Finance, Bimo Wijayanto, considers the MUI’s request reasonable, given that the commodities in question constitute a primary need of the people.