Tax Revenue Realization Indonesia Update: In Need of Revision
Up to 9 June 2016 tax revenue realization in Indonesia reached IDR 364.1 trillion (approx. USD $27.4 billion), or 29 percent of the target that was set in the 2016 State Budget. This disappointing score is the result of (1) a too ambitious tax income realization target set by the government, (2) low commodity prices (particularly crude oil; curbing tax income from the nation's exports), (3) taxpayers' tax restitution (which rose 32.5 percent y/y in the January-June period), and (4) Indonesia's slower-than-expected economic growth.
Initially, the government of Indonesia set an overly ambitious tax collection target in 2016 (IDR 1,360 trillion), up 29 percent from tax revenue realization in full-year 2015 (IDR 1,055.6 trillion), and without really substantiating what could cause this impressive growth amid the sluggishly expanding global and domestic economy (except for the Tax Amnesty Bill that is discussed below). Indeed targets have to be set high in order to keep everyone on their toes and deliver the goods. However, Indonesia now has a solid history of failing to achieve its tax revenue target. More alarmingly, the shortfall is becoming larger and larger each year. This widening shortfall seriously undermines the credibility of the Indonesian government regarding fiscal policy-making and undermines confidence in the successful performance to achieve its targets.
In the Revised 2016 State Budget, which is currently being deliberated in the country's House of Representatives (DPR), a lower tax revenue target is expected to be agreed upon.
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 | 985.1 | 1,055.6 | 1,160.0¹ |
| Balance (in IDR trillion) |
72.9 | 34.3 | 11.4 | 6.1 | 49.7 | 78.9 | 87.2 | 238.6 | 200.1¹ |
Meanwhile, tax revenue in the oil & gas sector has been-than-expected because the Indonesian Crude Oil price has been lower than initially assumed. The Indonesian government originally set the oil price at USD $50 per barrel. This figure is expected to be reduced to USD $35 per barrel in the Revised 2016 State Budget.
Tax restitution rose 32.5 percent (y/y) from IDR 46.1 trillion to IDR 61.1 trillion in the January-June period as Indonesian tax payers are concerned that they cannot claim compensation once the Tax Amnesty Bill comes into effect. This bill, which is designed to make it attractive for tax evaders to come clean and repatriate their funds into Indonesia, is currently being discussed among the DPR. Reportedly, two parties - the Indonesian Democratic Party of Struggle (PDI-P) and the Great Indonesia Movement Party (Gerindra) - disagree about the impact of the Tax Amnesty Bill on the revised 2016 state budget. However, this disagreement is not expected to lead to another delay in implementation of the bill.
Ken Dwijugiasteadi, Director General of Indonesia's Tax Office, said he expects the Tax Amnesty Bill to inject around IDR 165 trillion (approx. USD $12 million) to the 2016 state budget.
Indonesian Macroeconomic Assumptions in the 2016 State Budget:
| Original Budget 2016 |
Proposed Revisions 2016 State Budget |
|
| GDP Growth annual percent change |
5.3 | 5.1 |
| Inflation annual percent change |
4.7 | 4.0 |
| Exchange Rate IDR/USD |
13,900 | 13,500 |
| Government Revenue in IDR trillion |
1,822.5 | 1,734.5 |
| Tax Revenue in IDR trillion |
1,546.7 | 1,527.1 |
| Income Tax Oil & Gas in IDR trillion |
41.4 | 24.3 |
| Non-Tax Revenue Oil & Gas in IDR trillion |
273.8 | 205.4 |
| Treasury Bills Interest Rate 3-month, percent |
5.5 | 5.5 |
| Crude Oil USD $ per barrel |
50 | 35 |
| Oil Lifting in barrels per day |
830,000 | 810,000 |
| Gas Lifting barrels of oil equivalent/day |
1,155,000 | 1,115,000 |