Sumitronomics 4.0: The Urgency of a Digital Fiscal Architecture

In 1952, while serving as finance minister, Sumitro Djojohadikusumo faced severe fiscal pressure. State revenues were minimal, post-war infrastructure was devastated, and the burden of colonial-era debt was crushing. Prices for key commodity exports, which had previously soared during the Korean War era, began to plummet, while imports continued to swell. Sumitro did not opt for extreme austerity or reckless money printing, but instead chose a third path—an expansionary yet sustainable fiscal reform, broadening the tax base and investing the proceeds into productive development (Djojohadikusumo, 1985). Seven decades later, the question echoes once more: how can a nation be sovereign if it cannot finance itself from resources created domestically? This challenge is increasingly evident when examining today’s structural portrait. Indonesia’s tax ratio remains stagnant at around 10 percent. While the economy continues to grow, the pace of tax revenue often lags behind—a strong signal that the conventional tax base design is failing to capture the acceleration of real economic value. One of the largest blind spots in this gap lies within the digital economy sector, even though Indonesia is recognised as the largest digital market in Southeast Asia. Digital tax receipts, since the relevant instruments came into effect up to early 2025, have only reached Rp33.56 trillion. It should be noted that VAT on Trade Through Electronic Systems (PPN PMSE) has been in effect since July 2020 and contributed Rp26.18 trillion—the largest component. Meanwhile, three other instruments—crypto tax (Rp1.21 T), P2P fintech tax (Rp3.23 T), and SIPP tax (Rp2.94 T)—only began to be collected from 2022. Why is Indonesia’s digital tax collection still not optimal? The answer lies in three structural chasms that lock each other in place. First, the conceptual chasm. The 20th-century tax regime rests on the principle of permanent establishment, where the right to tax corporate income only applies if the company has a physical presence (brick-and-mortar) in the domestic jurisdiction. This principle is obsolete when global technology giants can extract trillions of rupiah in economic value from millions of users in Indonesia without needing to build a physical office. The government has actually introduced the concept of Significant Economic Presence (SEP) through Law No. 2/2020, but its operational execution to tax the net profits of foreign giants is stalled due to the complexity of multilateral consensus. Second, the administrative chasm. The practice of profit shifting to low-tax jurisdictions continues to erode the domestic tax base. The Two-Pillar Solution from the OECD/G20, agreed upon by 136 countries and jurisdictions including Indonesia within the OECD/G20 Inclusive Framework on BEPS as of October 2021, was designed to close this gap. However, Pillar One (reallocation of taxing rights to the market jurisdiction where consumers are located) continues to face global delays due to high revenue thresholds and political dynamics in developed countries. Meanwhile, Pillar Two (a global minimum tax of 15 percent) is beginning to be adopted gradually through the domestic framework: Government Regulation No. 55/2022, specifically Articles 52, 53, and 54, lays the legal foundation, which was then technically elaborated through Minister of Finance Regulation No. 136/2024 on the Imposition of Global Minimum Tax Based on International Agreement, effective from 1 January 2025. Third, the international trade-political chasm. This is the most concrete and challenging reality. Within trade diplomacy dynamics, Indonesia’s room for manoeuvre is locked by bilateral commitments, including clauses in reciprocal trade agreements with key partner countries such as the United States. International trade rules generally prohibit the unilateral imposition of Digital Services Tax (DST) or similar levies deemed to discriminate against foreign technology corporations in law or practice. Unilateral DST instruments once used by several European countries—such as France, the United Kingdom, Italy, and Austria—now face real risks of trade lawsuits and tariff retaliation, as evidenced by pressure from the United States through a Section 301 investigation into France’s DST policy in 2019-2020. Nevertheless, these limitations do not mean the total closure of fiscal space. PPN PMSE remains validly applicable as long as it is imposed equally and non-discriminatorily on all digital service providers regardless of their country of origin. Options for imposing levy-based instruments or neutral consumption taxes remain open, where the proceeds can be reallocated to fund domestic digital resilience, digital literacy, and the strengthening of the local journalism ecosystem. The policy space is not entirely dead, only narrowed and demanding a high degree of precision. Redesigning Instruments The implication is that Indonesia’s digital fiscal policy approach must be shifted. Instead of forcing a unilateral DST that is vulnerable to triggering international trade disputes, the following three strategic steps are far more realistic, legally sound, and yet remain ambitious. First, optimise digital consumption taxes in a non-discriminatory manner. Indonesia must strengthen its inherently neutral consumption tax regime. The strengthening of the VAT rate, which nominally rose to 12 percent but whose effective rate remains 11 percent for non-luxury goods and services—including foreign digital services—through the other value tax base mechanism (PMK No. 131/2024), in accordance with the mandate of Law No. 7/2021 on Harmonisation of Tax Regulations.