Finding a Realistic Tax to GDP Ratio for Indonesia's 2018 Budget
According to Ken Dwijugiasteadi, Taxation Director General at Indonesia's Finance Ministry, a tax-to-GDP ratio at 11 percent would be realistic for Indonesia's 2018 state budget (but would still require big efforts from the government). In a plenary session of Indonesia's House of Representatives (DPR) earlier this week, regarding the 2018 state budget proposals, some called for a sharp increase in the tax-to-GDP ratio to 13 percent. However, considering the expected tax revenue growth, this ratio would be highly unrealistic.
Indonesia's successful tax amnesty program - that ran between July 2016 and March 2017 - should contribute to an improving tax-to-GDP ratio for Southeast Asia's largest economy. Indonesian taxpayers declared some IDR 4,880.9 trillion (approx. USD $367 billion) in previously undeclared assets under the program. This result will also have a positive impact on tax revenue in 2018 although Dwijugiasteadi added it remains unknown how much percent of these total declared assets can be taxed (authorities are still calculating this matter).
Regarding Indonesia's 2018 State Budget, Indonesian Finance Minister Sri Mulyani Indrawati suggests to set the macroeconomic growth target between the wide margin of 5.4 percent and 6.1 percent year-on-year. However, several fractions in the DPR said this assumption is unrealistic considering the global and domestic economies are not fully recovered yet, while protectionism is gaining ground across the globe.
It is interesting to note that former World Bank Director Indrawati is actually known as a "realistic policy maker". Since she has re-entered the Indonesian cabinet the central government's budget planning has been realistic and this is among the reasons why Indonesia finally obtained the investment grade status from Standard & Poor's several weeks ago.
Indonesia's 2018 State Budget Assumptions:
| State Budget Draft 2018 |
|
| GDP Growth annual percent change |
5.4-6.1 |
| Inflation annual percent change |
2.5-4.5 |
| Exchange Rate IDR/USD |
13,500-13,800 |
| Treasury Bills Interest Rate 3-month, percent |
4.8-5.6 |
| Indonesian Crude Oil USD $ per barrel |
45-60 |
| Natural Gas Lifting barrel of oil equivalent/day |
1,965-2,050 |
Source: Bisnis Indonesia