Locking the Loopholes of Tax Avoidance
Often, the discourse on tax avoidance is only understood as a matter of taxpayer morality. Although not entirely wrong, this view tends to oversimplify the issues, data, and empirical facts. In practice, tax avoidance is also born from the initial design of a tax system that has not been fully capable of reading transactions completely, quickly, and in an integrated manner. In other words, the root of the problem is the wide information asymmetry between tax authorities and taxpayers that persists today.
The World Bank (2024) in its Indonesia Economic Prospects (March 26, 2025 edition) revealed that Indonesia still faces significant challenges in optimising state tax revenue. Although reforms have been and are being carried out, the leakage of potential revenue from the tax sector remains significant. This is reflected in the large revenue gap in two main tax instruments: value-added tax (VAT) and corporate income tax. Closing the tax gap on VAT and corporate income tax could yield additional revenue of up to 6.4% of gross domestic product (GDP), equivalent to Rp944 trillion per year. This phenomenon signals that Indonesia’s tax reform still leaves a major agenda. Clearly, the untapped revenue potential indicates the need for a fairer, more efficient, and sustainable tax system to strengthen the fiscal space for financing development, public services, and long-term economic agendas.
Tax avoidance is not always visible. The phenomenon can present itself through silent pathways via complex transaction structures, exploitation of treaty loopholes, transfer pricing arrangements, restitution claims that do not reflect real transactions, and differences in the treatment of cross-jurisdictional transactions. Therefore, the conventional approach that merely prioritises post-transaction audits (ex-post) is outdated. When business moves at high speed and in real-time, tax supervision must also move towards risk-based supervision and real-time monitoring. Furthermore, strengthening regulations to be relevant in answering current business challenges is a crucial prerequisite for closing tax avoidance loopholes, including those across jurisdictions. The OECD (2025), in the context of double taxation agreements, places the prevention of treaty abuse as part of the minimum standards for Base Erosion and Profit Shifting (BEPS). This is done through the Principal Purpose Test (PPT), an anti-avoidance provision in international agreements that denies treaty benefits if the main purpose of a transaction is to avoid tax. In harmony with this, Indonesia, through Minister of Finance Regulation PMK 112/2025, has also reinforced the procedures for applying tax treaties, including provisions for preventing treaty abuse and the PPT. However, strong regulation is never optimal without a data-based tax administration.
The OECD (2025) emphasises that the digitalisation of tax administration, including data governance, data exchange, and data analytics, is the foundation for strengthening supervision and compliance services. The common thread is: without integrated data, regulations risk being only normatively firm on paper but weak in the field. Therefore, the momentum of administrative reform through the Coretax system needs to be explored more deeply than just a system update. The Directorate General of Taxes (DJP, 2025) explains that Coretax is a core tax administration system that integrates all core processes—registration, tax return filing, payment, audit, and collection—into a single centralised digital platform. This system replaces the old DJP Online system to create an accurate and transparent database. Thus, Coretax should become the foundation for building a more complete taxpayer risk profile, not just a new channel for fulfilling administrative obligations.
The next agenda is strengthening tax administration based on compliance risk management. This aligns with the OECD’s emphasis on the importance of utilising data, cross-matching, analysis, and data governance to understand and manage compliance risks. Through the integration of tax return data, tax invoices, withholding and collection data, customs, asset ownership, third-party information, and audit history, tax authorities can more accurately distinguish between compliant taxpayers, those who make mistakes due to regulatory complexity, and those who deliberately design avoidance schemes. Artificial intelligence (AI) can be a reinforcement for risk-based tax administration, not a replacement for tax official discretion. The IMF (2025) confirms that AI can support compliance risk analysis in tax and customs administration, particularly for reading patterns, processing complex information, and helping analysts determine supervisory priorities. However, the World Bank (2025) cautions that algorithms are not always superior to the judgement of experienced officers. Therefore, AI should be positioned as a decision-support tool, not the sole decision-maker. In practice, AI can be used to detect anomalies, map affiliate relationships, identify unusual transactions, and prioritise audits.