Tax Collection to Miss Target in 2015, Indonesia's Tax Chief Resigns
The Director General of Indonesia's Tax Office, Sigit Priadi Pramudito, unexpectedly resigned from his post on Tuesday (01/12) as it became increasingly clear that there will be a big shortfall, perhaps up to IDR 250 trillion (approx. USD $18 billion), in the country's tax collection this year. In the Revised 2015 State Budget the Indonesian government targets to collect IDR 1,294.3 trillion (approx. USD $94 billion). Pramudito is the first tax chief to resign from his post in the modern history of Indonesia.
Up to the end of November 2015, tax collection stood at a mere IDR 869 trillion, or 67 percent of the Indonesian government's full-year target. However, to what extent Pramudito can be held responsible for this weak performance is open to debate as it is widely understood that Indonesia's tax collection target in 2015 is unrealistic given that the government targets a 30 percent (y/y) growth in tax revenue to IDR 1,294.3 trillion from last year's tax revenue realization of IDR 985 trillion. It remains unclear how and where the government expected to boost tax collection, particularly considering that economic growth was still slowing in most of 2015 and the country's imports and exports plunged dramatically over the past year.
On Tuesday evening (01/12), Pramudito stated that he resigned as a sign of taking responsibility for not achieving the government's tax target, or not even achieving a realization figure of 85 percent (which is regarded as the boundary between an acceptable realization performance and an unacceptable one). Pramudito expects tax collection to reach 80-82 percent of the full-year target.
The huge tax shortfall also implies more pressure on the government's budget deficit. Last month, the government revised its budget deficit projection to 2.7 percent of the country's gross domestic product (GDP), becoming dangerously close to the 3.0 percent of GDP limit that is stipulated by Indonesian law. The 2.7 percent of GDP budget deficit is calculated by assuming a tax collection realization rate of 85 percent in 2015. Given that tax collection will most likely fall below that assumption, the government may need to engage in multilateral loans to cover the deficit.
Indonesia's Tax Collection Target and Realization 2008-2016
| 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | |
| Target (in IDR trillion) |
534.5 | 597.5 | 661.4 | 878.7 | 885.0 | 995.2 | 1,072.4 | 1,294.3 | 1,360.1 |
| Realization (in IDR trillion) |
607.4 | 563.2 | 650.0 | 872.6 | 835.3 | 916.3 | 984.9 |
Sources: Direktorat Jenderal Pajak & Nota Keuangan
Indonesia's Tax Amnesty Bill
The Indonesian government is expected to offer tax amnesty in mid-December 2015 to those who have parked Indonesian assets abroad (it is estimated that this involves around IDR 3,000 trillion or approximately USD $221 billion in funds). Taxpayers who report their overseas wealth will be taxed between 1.5 and 6 percent if they disclose their wealth in 2016 (the program finishes at end-2016). Currently, Indonesia's personal tax ranges between 5 and 30 percent, while corporate tax ranges between 20 and 25 percent. Through this tax amnesty plan the government aims to collect an additional IDR 80 trillion (approx. USD $5.8 billion). However, the fruits of this plan will be enjoyed next year, thus cannot help to boost tax collection in 2015.
Indonesian Finance Minister Bambang Brodjonegoro inaugurated Ken Dwijugiasteadi, a senior official at the Finance Ministry, as replacement for Pramudito.
Indonesia's tax-to-GDP ratio currently stands at around 11 percent; a very low figure compared to developed nations as well as emerging peers. This low figure is caused by weak tax compliance, the country's large informal sector, weak government management (including the lack of manpower), corruption, and weak law enforcement.
Further Reading:
• What is the Problem with Tax Collection in Indonesia?
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