Reforming Indonesia’s tax administration system to raise revenues for sustainable development

Context

Indonesia faces major challenges in mobilising domestic resources for lasting development. Despite steady economic growth over the last five years, the average tax ratios have been extremely low compared to other countries, while actual tax revenue collection has frequently fallen below targets. Due to this, the Indonesian government is pushing several measures such as broadening the tax base, improving tax administration and improving the quality of government spending to support transformation towards a low-carbon economy.

Objective

The Indonesian government is reforming its fiscal policy and tax administration system and creating the conditions to finance its implementation of the 2030 Agenda.

Approach

The project works with the Fiscal Policy Agency (BKF) to improve the formulation of fiscal policy with the aim of increasing government revenue and improving the quality of government spending. Since 2019, the project has been exploring new revenues from carbon tax, the digital economy and forestry. Moreover, it has been supporting long term fiscal strategy through green reforms within the Energy Transition Mechanism (ETM), climate finance, the carbon pricing mechanism and targeted subsidies schemes.

The project also cooperates with the Directorate General of Taxes (DJP) to improve the validity and accuracy of tax data and digitalisation of tax services with main activities such as data cleansing and migration for a new central tax system and developing a mobile application (M-Pajak). Another project aim is to consolidate tax compliance of corporate taxpayers through trainings for tax administrators in areas such as risk management and auditing, the integration of risk-based corporate audit plans and the utilisation of digital reportings such as eXtensible Business Reporting Language (XBRL).

Last update: October 2022