100 Ekonom RI Book: DDTC Founder Unveils 4 Revolutionary Tax Steps

The experts’ ideas and recommendations have been outlined in the book Pemikiran 100 Ekonom Indonesia: Estafet Kepemimpinan Baru Menuju Akselerasi Ekonom. The founder of DDTC Darussalam is among the economists who contributed his insights in the field of taxation.

In ‘Pemikiran 100 Ekonom Indonesia’, Darussalam wrote an article titled Saatnya Eksekusi Empat Langkah Revolusioner Bidang Perpajakan. The book is publicly accessible through this webpage.

Through his writing, Darussalam maps out the fundamental challenges in the implementation of tax reforms as well as four key strategies the government must adopt to tackle these issues.

The four measures encompass improving the tax revenue structure, changing approaches in taxation, evaluating policies through the lens of tax concepts and institutional redesign of tax authorities.

How are the four strategies implemented?

Darussalam's writing starts off with the discourse on the establishment of the State Revenue Agency (Badan Penerimaan Negara/BPN in English). The establishment of BPN and the target to pursue a state revenue ratio of 23% were pivotal issues raised by President Prabowo Subianto, even long before the election.

However, in reality, Prabowo-Gibran administration’s Red and White Cabinet does not include the BPN. This signals that the new government regime has yet to take revolutionary measures to boost state revenues, which only stood at 13.3% (2023).

Please keep in mind that state revenue optimisation is increasingly urgent given the rise in the number of ministries/institutions and development plans or programmes that require funding.

The non-optimum tax revenues, according to Darussalam, are interconnected with Indonesia’s fundamental issue, a persistently low tax ratio. Why so? Tax revenues contribute to approximately 80% of state revenues, implying that efforts to increase tax revenues remain a critical priority.

Data from the Ministry of Finance, processed by DDTC Fiscal Research & Advisory indicated that nominal tax revenues grew nearly threefold between 2010-2023, from IDR628.2 trillion (2010) to IDR1,869.2 trillion (2023). However, the tax ratio performance slumped from 11.3% (2010) to 10.3% (2023).

The government has employed various solutions through tax reforms. These reforms encompass human resources (HR), business processes, organisation, regulations and data-based information technology. Albeit these efforts, tax performance remains suboptimal.

In light of this, the new government should have a strong momentum to design revolutionary steps.

Improvement of Tax Revenue Structure

Indonesia's tax revenue structure remains imbalanced, both in terms of business sectors and the types of taxes. This is evident in the fact that several business sectors contribute substantially to GDP, yet their contribution to tax revenues remains minimal (undertaxed).

Therefore, tax optimisation is to be pursued in these business sectors. Targets of tax revenue optimisation cover the agriculture, mining and construction sectors.

Beyond the sector-based optimisation, a review of the tax revenue structure is essential in terms of the types of taxes. To date, income tax predominates, contributing to approximately 56.8% of total tax revenues. Value Added Tax (VAT) and Sales Tax on Luxury Goods (STLGs) account for 40.9%, followed by Land and Building Tax (L&B Tax) at 1.8% and other taxes at 0.5%.

Changing Approaches in Taxation

Another revolutionary step worth considering is changing approaches in taxation. What kind of changes? The authorities need to shift the taxation approach from enforced compliance to cooperative compliance.

The OECD (2021) points out that cooperative compliance plays a crucial role in efforts to increase state revenues that fuels sustainable development.

Digitisation and information transparency also sustain the shift towards creating cooperative compliance. In the Indonesian context, the implementation of the coretax system should not only focus on reducing the cost of collection it also should focus on lowering the cost of compliance (Kristiaji, 2024).

In principle, cooperative compliance is anchored in 3 basic pillars, namely mutual trust, transparency and understanding (Darussalam et al, 2019).

Policy Evaluation through the Lens of Tax Concepts

The Prabowo-Gibran administration is to evaluate all policies through the lens of taxation. The government’s conceptual understanding of taxes, rooted in the principles of good taxation, is a must.

These principles should serve as a solid foundation for formulating and evaluating every policy (Darussalam, Septriadi, Marhani, 2024).

Redesign of the Tax Authority

The final revolutionary strategy pertains to the institution of the tax authority, as underlined in the opening sentence of Darussalam’s writing. The plan to establish BPN is not novel. The former president, Joko Widodo (Jokowi) had also discussed the establishment of the BPN, but the plan was ultimately cancelled.

President Prabowo is expected to reconsider the idea of establishing the BPN in the next 5-year government term. The establishment of the BPN, nonetheless, must be aligned with the general tax ecosystem, which includes a description of the roles, positions and interactions of various other institutions.

Four key aspects need to be considered in establishing the BPN. First, the internal control mechanisms for taxpayers. Second, the establishment of special units related to tax policy. Third, strengthening the role of the Tax Supervisory Committee as the tax ombudsman. Fourth, the reform agenda for resolving tax disputes. (sap)