The government has set the 2025 tax revenue target at IDR 2,189.3 trillion, an increase of around 13.29% from the 2024 revenue realization.
Although the government has set this figure to be equivalent to 9% of the Gross Domestic Product (GDP), considering the 2024 tax revenue realization, which only reached 97.2% of the target, it is clear that this is no easy task. UGM economist Dr. Rijadh Djatu Winardi sees several obstacles that could hinder achieving the tax revenue target.
“The potential decline in public purchasing power remains a real threat to the country’s economy. If public purchasing power weakens, it will undoubtedly affect consumption, which in turn impacts tax revenue from that sector,” Dr. Winardi stated on Thursday (Feb. 27).
He also noted that the public’s distrust of the government, as seen recently, also contributes to taxpayers’ compliance in fulfilling their obligations. This, of course, becomes a challenge for efforts to increase tax revenue.
“The government needs to work hard and implement the right strategies to achieve that target,” he explained.
Dr. Winardi identified several factors hindering tax revenue at the start of 2025. One of them is the Core Tax Administration System (Coretax), the new tax system in Indonesia, which is seen as one of the obstacles that need immediate solutions.
While the idea behind it is commendable—it aims to improve the tax gap and tax database management in Indonesia—unfortunately, since its launch last January, many complaints and issues have been reported regarding the new system.
According to him, the Coretax system’s capacity and architecture have not been designed for high scalability, making it prone to service disruptions when data volumes surge.
“The server infrastructure used seems to have not been optimized to handle high-volume data processing and the complexity of large-scale tax transactions,” he explained.
He cited Singapore, which successfully implemented a similar tax system without significant issues. Singapore has the MyTax Portal under the Inland Revenue Authority of Singapore (MyTax IRAS), which was launched in 2007.
In his opinion, this system is certainly more mature and established since it has been operating since 2007.
However, Dr. Winardi believes that Coretax can become a secure system like MyTax IRAS, enabling personalized and informative services with proper improvements.
“The scale of users between Indonesia and Singapore is obviously not comparable, so if the system in Singapore experiences problems, they can be resolved quickly,” Dr. Winardi remarked.
Additionally, he highlighted the postponed implementation of the value-added tax (VAT) increase this year. Although the VAT increase from 11% to 12% is expected to strengthen state revenue and support sustainable development, from an economic perspective, it is necessary to carefully review which goods and services might lead to price hikes for the public.
He expressed concerns that the VAT increase could lead to inflation and reduce the purchasing power of the lower middle class.
On the other hand, the Average Effective Rate (AER) applied to calculate Income Tax 21 (PPh21) aims to simplify the calculation of employee taxes.
Dr. Winardi believes that simplifying taxation, although not a significant determinant, is hoped to encourage tax compliance.
He added that although it is still too early to assess the impact of declining tax revenue on the national economy, a significant shortfall in revenue targets will certainly affect it.
“In general, what may happen is a reduction in government spending, a widening budget deficit forcing the government to increase the debt ratio, economic growth slowing down, a decline in public purchasing power, and national economic instability,” he said.
Dr. Winardi then offered alternative tax revenue sources that the government could explore to reduce dependence on VAT and Income Tax as alternative revenue options.
The first is a wealth tax, which is imposed on the value of a person’s assets. Wealth tax rates typically range below 3.5% in some countries that have implemented it.
The second optimization for tax revenue is through coal production taxes, which are generally calculated based on the volume of coal produced.
The third alternative is a windfall tax. A windfall tax is levied on unexpected profits (windfall profits) obtained by companies or individuals from significant commodity price increases.
For instance, in 2022, the UK imposed a 25% windfall tax on oil and gas companies due to soaring fuel prices.
“Of course, all these alternatives still require thorough study, careful policymaking, and political will,” he explained.
The economist reminded the public, especially economic observers, that although the 2025 tax revenue target is challenging and risky, he encourages them to remain optimistic.
The government has certainly considered various strategies to achieve the tax revenue target, including tax intensification and extensification and efforts to improve tax administration. Moreover, budget efficiency is also one of the keys to maintaining fiscal stability.
“It is also important for all of us to support the government’s efforts to increase tax revenue. With strong tax revenue, the government will have sufficient resources to implement development programs and improve public welfare,” Dr. Winardi concluded.
Author: Triya Andriyani
Post-editor: Afifudin Baliya
Photo: Freepik