Tax Ratio and Future Tax Challenges

Tax Ratio and Future Tax Challenges

PPN - 13 May, 2024 15:05 WIB

The government has stipulated the initial draft of the Government Work Plan or Rencana Kerja Pemerintah (RKP) 2025. Through this document, which serves as the basis for the State Budget of Revenue and Expenditure Draft or Rancangan Anggaran Pendapatan dan Belanja Negara (RAPBN), the government determines the objectives to achieve in 2025, including the tax revenue target.

 

Based on the draft, the 2025 tax revenue target is set at 11.2% to 12% of the 2025 Gross Domestic Product (GDP), which means that the Government is targeting a tax ratio of 12% in 2025 (Kontan, 2024). The tax revenue target in the 2024 State Budget is 10.12% of GDP. The determination of the tax ratio of 12% is also the highest tax ratio in history as shown in the following table:

 

No

Year

Tax Ratio

1

2019

9.8%

2

2020

8.3%

3

2021

9.1%

4

2022

10.4%

5

2023

10.32%

6

APBN 2024

10.12%

 

Based on the table above, we can see that the average tax ratio in Indonesia during the 2019-2024 period is below 11%. It means that extra effort is needed from the government to increase the ratio of tax revenue to GDP to reach 12% by 2025. If not, then the attempt to raise the tax ratio will only be a mere boast.

 

Indeed, in 2021, the government, along with the House of Representatives, enacted the Tax Harmonization Law. Through this omnibus tax law, the government regulates many things to extend and intensify taxation. 

 

Some of the things regulated in the laws issued during the pandemic include an increase in the VAT rate to 12% by 2025, expansion of value-added tax objects, introduction of an income tax rate layer of 35% for individual taxpayers with income above five billion rupiahs, the introduction of a tax on in-kind and implementation of a carbon tax as an effort to expand and intensify taxation.

 

Moreover, the government also plans to implement a new tax administration system by 2025. Through the system, named the Renewal of the Core Tax Administration System or Pembaruan Sistem Inti Administrasi Perpajakan (PSIAP), the government hopes to collect and manage data in an automated manner so that it can ultimately generate tax revenue.

 

However, are these various regulations and administrative reforms enough to boost tax revenue in 2025? Because as we know, some HPP law provisions cannot be implemented due to the unavailability of derivative regulations. For example, until now, the carbon tax provisions have not been implemented because the government has not fulfilled several regulations (CNBC, 2024).

 

Furthermore, the DGT has not yet regulated the technical provisions regarding the reporting of in-kind tax. As a result, the in-kind and enjoyment tax implementation cannot be done optimally. In addition, the incomplete technical provisions have made it difficult to monitor the in-kind tax.

 

In line with the regulation, the core tax system implementation in PSIAP has also been delayed. The tax administration system that was first to be implemented on January 1, 2024, was postponed to July 2024. Many factors have caused the delay in the PSIAP implementation, including the country's political condition.

 

In addition, the implementation of PSIAP in July 2024 cannot immediately boost tax revenue in 2025 to meet the tax ratio target of 12%. Thus, making PSIAP the spearhead of efforts to meet the 2025 tax ratio is not the right policy.

 

There needs to be more effort from the government to achieve a tax ratio of 12% in 2025. Moreover, an overly ambitious tax ratio establishment triggers the aggressiveness of the tax authorities. Eventually, the more aggressive the tax authorities are, the higher the dispute between taxpayers and the authorities.  

 

One way to reduce the tension between tax authorities and taxpayers is by optimizing the role of tax consultants. In Japan, the government positions tax consultants as partners in achieving tax compliance. Therefore, it is time for the government to give space to consultants as a bridge between taxpayers and tax authorities.  

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