World Bank urges RI to do more on tax revenue

JAKARTA (JP): The World Bank urged the government on Thursday to step up its efforts in raising tax revenue to improve its debt repayment capacity and finance the development of public services.

World Bank senior economist Bert Hoffman stressed the importance for Indonesia to secure internal funding for its budget.

"Indonesia has a lot of obligation, and Indonesia needs a lot more public service, and for that you need taxes," Hoffman said on the sidelines of a tax seminar held by the director general for taxes and the Union of Economic Degree Holders.

With a 2001 tax revenue target of Rp 156 trillion (about US$16.5 billion), the state budget still runs at a deficit, which the government hopes to contain at about 3.7 percent to gross domestic product (GDP).

To plug the deficit, the government is relying on state asset sales and foreign loans.

Among Indonesia's biggest creditors is the World Bank, which last month issued loans of about $440 million to the country.

New loans, however, mean additional pressure on the future budget.

The government is scrambling to activate $2.8 billion in a debt rescheduling deal with sovereign creditors grouped under the Paris Club.

Hoffman said Indonesia's tax ratio, which at present is about 12 percent of the GDP, was too low compared to other countries in the region.

He suggested the government reduce tax exemptions, improve tax administration and raise public awareness on tax obligations.

Nonetheless, Hoffman said efforts to increase the government's tax revenue would be a long and difficult process.

Last year, then director general of taxation Machfud Sidik complained that too many people had evaded their tax obligations.

He said over half of the country's legislators, ministers, generals and other high-ranking government officials skipped tax payments.

Machfud said later that the number had improved significantly, although he gave no figures.

He said that out of some 20 million potential taxpayers, only 1.3 million were registered, of which less then half paid their taxes accordingly.

To date, the number of individual taxpayers has grown to 1.9 million people, said Director General of Taxation Hadi Poernomo.

Hadi further promised next year a tax ratio of 12.8 percent to the GDP from the current 12 percent this year, and 16 percent by 2004.

Concern has also arisen that this year's tax revenue may fall short, as signs of a global economic recession threaten the country's export earnings.

Governments around the world are bracing for the fallout of last week's terror attacks on the United States, whose retaliation may tip the global economy into recession.

The attacks came as the U.S. government tries to stimulate growth in its economy, which has slowed down since early this year.

America remains the single largest export market for many countries, including Indonesia.

Local exporters estimated a revenue drop of between 10 percent and 20 percent from last year's export revenue of $62 billion.

But the director general of taxation remains confident.

Hadi said he would offset the loss in export-based income taxes by intensifying tax collection and expanding the tax base.

Total tax receipts until the end of August have reached Rp 105.3 trillion or about 67 percent of the 2001 tax revenue target.(bkm)