The government has set a tax revenue target of IDR 2,908 trillion in the 2027 Draft State Budget (RAPBN), up 10.5% from the 2026 outlook of IDR 2,631.4 trillion. Tax revenue is targeted at IDR 2,591.35 trillion, an increase of 12.1% from this year’s projection.
The target is based on an assumption of 6% real economic growth in 2027. The government has also opened the possibility of introducing new types of taxes if economic growth and household purchasing power remain strong.
Higher revenue is needed to support state financing. However, the target needs to be assessed against the economy’s capacity and the effectiveness of tax administration. For businesses, the issue is not only whether the government can meet the target, but also how it does so. Greater reliance on taxpayers already within the system could put additional pressure on cash flow, investment, and business activity.
Assessing the Target through Tax Buoyancy
One indicator used to assess the relationship between tax revenue and economic growth is tax buoyancy. The indicator measures changes in tax revenue against changes in economic activity, generally using nominal economic growth as the benchmark.
The 2027 Draft State Budget targets tax revenue growth of 10.5%. Assuming 6% real economic growth and inflation of around 2.5%, nominal economic growth is estimated at 8.5%.
Under these assumptions, tax revenue would need to grow around 1.23 times faster than nominal economic growth. This means that every 1% increase in nominal economic activity would need to generate around 1.23% growth in tax revenue.
The target is challenging when compared with developments in recent years. In 2021 and 2022, Indonesia’s tax buoyancy was indeed above 2. However, the performance was supported by special factors, namely higher commodity prices and the implementation of the second tax amnesty.
After the effects of these two factors faded, tax buoyancy fell to 0.88 in 2023 and 0.60 in 2024. The 2025 projection even points to a negative figure.
Under these conditions, raising tax buoyancy to 1.23 would require an expansion of the tax base and improvements in tax administration. Administrative measures alone, without bringing new sources of revenue into the system, would be unlikely to generate such an increase sustainably.
Risk of Pressuring Existing Taxpayers
A high revenue target could encourage the tax authority to intensify enforcement against taxpayers already registered in the system. The risk is that more revenue would come from the same taxpayers, while efforts to expand the tax base progress more slowly.
This condition is often described as “shooting fish in a barrel,” in which the tax authority focuses more heavily on taxpayers already within the system rather than expanding the tax base.
For companies, such pressure becomes a problem when higher tax liabilities are not accompanied by corresponding growth in turnover and profits. If business activity remains stagnant while tax payments increase, corporate cash flow could come under pressure.
The impact could include delayed expansion, reduced capital expenditure, or postponed hiring. Over the long term, revenue that depends on intensifying enforcement against the same taxpayers cannot replace revenue generated by expanding economic activity.
Tax refunds also need attention. Delays in the refund of overpaid taxes can reduce companies’ working capital. For businesses, tax refunds are part of the liquidity that can be used for operations and investment.
Such pressure could also increase the potential for tax disputes. Disputes require time and resources from both taxpayers and the government. Therefore, the success of revenue collection should not be measured solely by the amount of tax collected, but also by the certainty of tax administration and the level of voluntary compliance.
Fiscal Risks
Failure to meet the revenue target could also affect state budget management. Government spending plans are prepared based on certain revenue assumptions. If revenue falls significantly short of the target, the government would need to adjust spending or increase financing.
Spending adjustments could affect programs such as infrastructure, social assistance, and subsidies. Cuts to such spending could have knock-on effects on consumption and economic activity.
Another option would be to increase financing through debt. Additional financing needs under unfavorable market conditions could push up government bond yields and ultimately increase the state budget’s interest burden.
Repeated failure to meet revenue targets could also affect the credibility of fiscal policy. Consistency between targets, realization, and economic assumptions is important to maintaining the confidence of investors and rating agencies.
Expanding the Tax Base
Higher revenue should be pursued by expanding the tax base, rather than simply increasing pressure on existing taxpayers. Several measures could be taken.
First, the government needs to bring informal economic activity into the formal system. The informal economy remains a source of potential tax revenue.
The government needs to encourage informal businesses to enter the formal system through simple administration and low compliance costs. This approach should be supported by digitalization of tax administration and incentives that encourage businesses to register and fulfill their tax obligations.
Second, oversight of high wealth individuals (HWI) should be strengthened. Monitoring of HWI can be enhanced through the use of data on wealth, income, transactions, and asset ownership.
Data-driven analysis would enable the tax authority to identify discrepancies between economic profiles and tax liabilities. This would allow enforcement to focus on groups with higher compliance risks.
Third, the growth of the digital economy needs to be captured. The expansion of the digital economy is creating new sources of tax revenue. Transactions through marketplaces need to be accompanied by clear tax collection and reporting mechanisms.
Such policies need to establish which parties are responsible for collecting taxes, the taxable objects, administrative mechanisms, and treatment of small businesses. With the right design, the digital sector can expand the revenue base without placing a disproportionate burden on taxpayers that are already compliant.
Fourth, the tax control framework (TCF) should be expanded. TCF implementation can be broadened as part of the cooperative compliance approach. Through TCF, the tax authority can assess the effectiveness of companies’ internal tax control systems. Companies with sound control systems could receive greater certainty, while the Directorate General of Taxes (DGT) could allocate audit resources to higher-risk taxpayers.
Fifth, risk-based audits should be prioritized. The size of a company’s turnover and the complexity of its transactions do not automatically indicate a risk of tax violations. Audits should instead be based on data-supported risk indicators.
Integrating tax data with economic data could help the DGT determine audit priorities. This approach would allow audit resources to be used more effectively and reduce audits of taxpayers with high compliance levels.
The IDR 2,908 trillion tax revenue target for 2027 needs to be accompanied by a strategy that is aligned with the economy’s capacity. With revenue growth targeted above nominal economic growth, the government needs to expand the tax base and improve the quality of tax administration.
Sustainable revenue growth should be driven by increases in the number and scale of economic activities, rather than relying solely on higher collections from taxpayers already within the system. Therefore, the government should prioritize formalizing the informal economy, data-driven oversight of HWIs, optimizing the digital economy, expanding TCF implementation, and adopting risk-based audits.
Economic growth that generates more businesses, investment, jobs, and consumption will naturally expand the tax base. This approach is more sustainable than increasing revenue through greater pressure on the same tax base.
Also Read:
Breaking Down the Article 21 Withholding Tax Provisions
Tax Refunds Are a Right, Not a Fiscal Favor
Article 26 Income Tax: Withholding Tax on Foreign Taxpayers in Indonesia
