Informal Sector Dominates, Economist Warns Tax Revenue Could Be Pressured

The government is committed to not raising the price of subsidised fuel during 2026. A senior economist at Paramadina University, Wijayanto Samirin, assesses that the growth of Indonesia’s informal sector is primarily caused by economic compulsion rather than deliberate development planning. According to Wijayanto, the character of Indonesia’s services sector differs from that in advanced countries, which is dominated by high-value-added services such as consulting, insurance, and banking. Domestically, the services sector is instead filled with informal activities like street vendors, itinerant sellers, and mobile coffee vendors. “This is not something by design. We are not designing the economy to grow in the informal sector, but it happens due to necessity,” Wijayanto said at the “Unlocking Growth in the Middle-Income Trap” event organised by Tutur Media on Tuesday (7/4). He emphasised that, although the informal sector serves as an economic buffer, it does not provide adequate welfare guarantees for workers. Meanwhile, the goal of economic development is not only to create jobs but also to enhance societal welfare and purchasing power. “Our motivation is not just to get people working, but also to make them prosperous. The informal sector does not sufficiently address that,” he explained. Based on data from the Central Statistics Agency (BPS), 60% of Indonesia’s workforce is currently in the informal sector. Even according to business actors, this figure could reach 70% to 80%. Wijayanto warns that the dominance of the informal sector could pressure state revenues, as most business actors in this sector are unregistered and do not pay taxes optimally. Additionally, informal sector actors face limitations in developing their businesses, such as difficulty accessing bank financing or digital platforms. “They struggle to level up because they cannot access banking, e-commerce, and various other formal facilities,” he clarified. He views the informal sector as something that should be positioned as an economic fallback during pressures, not as the main pillar of growth. Therefore, he encourages the government to strengthen policies that can drive the transformation of the informal sector into formal through facilitation, incentives, and ease of business access. “What we must do is convert the informal sector into formal, not make it the main solution,” he concluded. Finance Minister Purbaya targets a tax ratio of 11–12% by 2026, optimistic that tax revenues will improve with economic recovery and strengthened DJP growth. Because the core tax system is not running according to the initial plan. This has instead caused tax revenues to stall. The Ministry of Finance records that 2025 tax revenues experienced a shortfall of Rp271.7 trillion and negative growth of 0.7% due to commodity moderation and economic pressures in the first semester. Up to the end of September 2025, the realisation of new revenues only reached Rp7.30 trillion or 55.01% of the target of Rp13.27 trillion, accompanied by a decline in growth compared to the previous year. National tax revenues are starting to lose momentum in 2025. Up to October, the realisation has only reached Rp1,516.6 trillion, leaving a target of around Rp600 trillion to be chased in the last three months of this year.