Page 12 - Working Paper (Narrowing Tax Gap: Cross Countries Experience)
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DDTC Working Paper 0915
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                     Table 6 - Tax Structure in Indonesia (2008-2013)  could  reach  tax-to-GDP  ratio  in  2019  to  15.3
                                      Actual                         percent or bit less than the target of the President
                                                                     sets.
                    Revenue   2008  2009  2010  2011  2012  2013
                    items
                                                                       Changes to the current tax policy design could
                    Total    19.8  15.1  15.4  16.3  16.3  15.8      increase revenues in the following  ways :  1)
                                                                                                           28
                    Revenue
                                                                     tax  extensification  by  broadening  tax  bases  and
                    Tax                                              reducing  exemptions;  2)  simplifying  complicated
                    Revenue  13.3  11.1  11.2  11.8  11.9  11.9
                                                                     tax structures and rationalizing the number of tax
                    Income    5.1   4.8   4.6   4.8  4.6   4.6       types,  brackets  and  tax  rates;  and  3)  selectively
                    non-O&G
                                                                     increasing tax  rates that  are particularly low  by
                    Income    1.6   0.9   0.9    1     1    1        international standards. For example, as in other
                    O&G
                                                                     countries, instead of multiple CIT rates for larger
                    VAT       4.2   3.4   3.6   3.7  4.1   4.2
                                                                     (non-SME)  firms,  a  single  corporate  income  tax
                    Excises     1     1    1     1   1.2   1.2       rate could be applied. In another example, changing
                    Int’ Trade   0.7  0.3  0.4  0.7  0.6   0.5       from an ad valorem (i.e. percentage on value) to a
                    Tax
                                                                     specific  (i.e.  fixed  Rupiah  amount)  tax  on  motor
                    Non-tax                                          vehicles would simplify administration and likely
                    Revenue   6.5     4   4.2   4.5  4.3   3.9
                                                                     increase compliance.  These  types  of reforms are
                   Source: APBN 2008 - 2013, Ministry of Finance     not only raise more revenues, but  potentially
                                                                     reduce economic  distortions  from exempting
                   Widodo (Jokowi) and Jusuf Kalla (JK) have stated   certain taxpayers  and sectors,  reduce  strategic
                   their  priority  to  lift  the  tax-to-GDP  ratio  to  16   behavior  by taxpayers  to  avoid  higher  tax  rates,
                   percent by 2019. To increase revenue mobilization,   and lower administration costs.
                   Jokowi and his  team need  to  enhance  current
                   revenue policies, improve tax  administration
                   performance  through better  enforcement and
                   reduced compliance  costs. Further tax  policy
                   reforms  with renewed  work programs could
                   mobilize additional revenues across several taxes
                   as well as reduce economic distortions and lower
                   administration  costs. Table  7 clearly depicts the
                   different  of total  revenue with its breakdown
                   components should the new government chooses
                   more autonomous administration. Based on our
                   previous paper measuring the effect of SARA to tax-
                   to-GDP, there is a possibility that the government
                                                                     28 Ibid.

                                                   Table 7 - Tax Capacity and Tax Effort

                                          No Major Reform                     With Major Reform in 2017
                          Revenue   2014  2015  2016  2017  2018  2019  2014  2015  2016  2017  2018  2019
                          items
                          Total      15   14.5  14.2   14   13.8  13.7  16.06  15.60  15.26  16.79  17.28  17.91
                          Revenue
                          Tax       11.3  11.1  11.1  11.1  11.1  11.1  12.36  12.20  12.16  13.89  14.58  15.31
                          Revenue
                          Income     4.4   4.5   4.5  4.6   4.6   4.7  5.46  5.60  5.56  7.39  8.08  8.91
                          non-O&G
                          Income      1    0.8   0.7  0.6   0.5   0.5  2.06  1.90  1.76  3.39  3.98  4.71
                          O&G
                          VAT         4    4.1   4.1  4.1   4.2   4.2  5.06  5.20  5.16  6.89  7.68  8.41
                          Excises    1.1   1.1   1.2  1.2   1.2   1.2  2.16  2.20  2.26  3.99  4.68  5.41
                          Int’ Trade
                          Tax        0.5   0.4   0.4  0.4   0.3   0.3  1.56  1.50  1.46  3.19  3.78  4.51
                          Non-tax    3.7   3.3  3.1   2.9   2.7   2.6  3.70  3.40  3.10  2.90  2.70  2.60
                          Revenue
                         Source: Ministry of Finance, WB staff Calculation (2014), DDTC calculation (2015)
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