State revenue performance through September 2026 faces challenges from declining revenue and substantial spending needs. As of the end of September 2026, the state budget deficit stood at IDR 319.0 trillion, equivalent to 1.24% of gross domestic product (GDP).
In 2025, state revenue amounted to IDR 2,756.3 trillion, down from IDR 2,842.5 trillion in 2024. The decline points to weakening state revenue amid the government's financing needs. Without an increase in revenue, the situation could narrow fiscal space and put pressure on the state budget's primary balance.
Revenue Performance
The 2026 state budget (APBN) sets a tax revenue target of IDR 2,357.7 trillion. However, projections from the Ministry of Finance indicate that actual collections may reach only IDR 2,310.8 trillion, leaving a potential shortfall of IDR 46.9 trillion.
As of September 30, 2026, tax revenue had reached IDR 1,607.6 trillion, or 68.2% of the annual target.
Several factors have affected tax revenue over the 2024–2026 period. First, the normalization and fluctuations of global commodity prices have affected revenue from related sectors. Second, pressure on household purchasing power has constrained domestic consumption growth. Third, the large informal sector and economic activities that remain insufficiently captured by the tax system have limited revenue collection. Fourth, tax refunds increased in 2025 following policy relaxations and accelerated audits, affecting net tax revenue.
Revenue pressures have also coincided with the government's need to meet its debt interest obligations. According to the Draft State Budget (RAPBN), interest payments on government debt in 2026 are projected to reach IDR 599.44 trillion, equivalent to approximately 22.27% of that year's tax revenue target.
The substantial cost of debt servicing limits the government's spending flexibility. The larger the share of the budget allocated to interest payments, the less funding remains available for development and public services.
Another challenge is the high value of tax refunds. At the end of 2025, tax refunds totaled IDR 361.2 trillion. The mining sector, particularly coal, has drawn attention, as net value-added tax (VAT) refund obligations to companies in the sector have reportedly reached approximately IDR 25 trillion annually.
Tax refunds are a legitimate entitlement for taxpayers who meet the applicable requirements. However, their substantial value calls for stronger oversight to ensure that claims comply with regulations and are supported by valid documentation. The government needs to strengthen risk-based audits without obstructing the legitimate exercise of taxpayers' rights.
Indonesia's tax ratio also reflects the challenges facing revenue collection. The Revenue Statistics in Asia and the Pacific 2026 report published by the Organisation for Economic Co-operation and Development (OECD) puts Indonesia's tax-to-GDP ratio at 11.8% in 2024 under the OECD methodology, which includes certain components of subnational government revenue.
Under the 2025–2029 National Medium-Term Development Plan (RPJMN), the government has set a target of increasing the tax ratio to between 11.52% and 15% by 2029. Achieving this target will require broadening the tax base, improving compliance, strengthening administration, and reducing economic activities that remain unrecorded. These measures should be accompanied by legal certainty to ensure that higher revenue collection does not place a disproportionate burden on taxpayers.
Tax Digitalization
The Directorate General of Taxes (DGT) is modernizing tax administration through the Core Tax Administration System (CTAS), known as Coretax. The system is designed to integrate administrative processes and improve the quality of taxpayer data management.
One instrument supporting tax oversight is the Compliance Risk Management-Integrated Risk Engine (CRM-IRE), a risk analysis approach used to identify taxpayers according to their level of noncompliance risk. Through this risk mapping, the DGT can prioritize monitoring and audits based on data.
Where taxpayers are suspected of tax evasion or manipulation, the government can take law enforcement measures in accordance with applicable regulations. A multi-door enforcement approach can be used to coordinate investigations through various legal instruments when the relevant elements of an offense are established.
The effectiveness of digitalization depends on data quality, the accuracy of risk analysis, information security, and oversight of the exercise of tax officials' authority. The system must also ensure transparency and provide mechanisms for taxpayers to submit clarifications or objections.
Beyond improving administration, the government is seeking to broaden the tax base by strengthening oversight of cross-border and domestic digital transactions. One instrument introduced for this purpose is the Tax Collection System for Foreign Digital Transactions (SPP-TDLN).
The scheme is intended to strengthen tax collection on cross-border digital transactions through the involvement of domestic payment facilitators, including banks, credit card issuers, and financial technology (fintech) companies. Its implementation requires clear allocations of responsibility, transparent collection mechanisms, and safeguards for transaction data.
Domestically, oversight should also cover electronic commerce (e-commerce), including transactions conducted through online marketplaces. Stronger data exchange, simplified reporting, and proportionate oversight can help improve business compliance.
Expanding the digital tax base must take into account infrastructure readiness, regulatory certainty, and compliance costs to avoid imposing excessive administrative burdens.
At the same time, the government needs to safeguard household purchasing power and support business activity. One instrument is tax expenditure, which refers to potential revenue forgone through tax facilities, exemptions, deductions, or relief measures designed to achieve economic and social objectives.
Tax expenditure in 2026 is estimated at IDR 563.6 trillion. This substantial amount calls for regular evaluations to ensure that the benefits of each incentive are commensurate with the potential revenue forgone.
Looking ahead to 2027, the government is preparing to continue the government-borne Article 21 income tax (PPh) incentive to support workers' purchasing power amid labor market pressures. The policy needs clear eligibility criteria, a defined implementation period, and measurable evaluation indicators so that its benefits can be assessed without excessively constraining fiscal space.
Fiscal Outlook for 2027
In its planning for the 2027 state budget, the government has set an economic growth target of 6%. State revenue is projected to reach IDR 3,435.1 trillion, while tax revenue is targeted at IDR 2,911.95 trillion. Achieving these targets will depend on economic conditions, the effectiveness of tax policies, and the government's ability to broaden the tax base.
Fiscal reform should focus on improving compliance, broadening the tax base, strengthening oversight, and improving the quality of public spending. Administrative modernization through digitalization can support these efforts, but its success will depend on more than the technology's ability to process data.
The government must ensure that digital systems are implemented accurately, transparently, and fairly. Risk-based oversight must be accompanied by safeguards for taxpayers' rights, legal certainty, and mechanisms to correct administrative errors.
The success of fiscal reform cannot be measured solely by the amount of revenue collected. Administrative quality, fairness in tax collection, the effectiveness of incentives, and the sustainability of the state budget are also important indicators. In this way, higher revenue can support development financing without imposing disproportionate compliance burdens or undermining the investment climate.
Also Read:
Tax Refunds Decline, Revenue Targets Pose Challenge
Rethinking Indonesia’s Non-Taxable Income Threshold
Reconsidering a State Revenue Authority
Editor: Thomas Rizal
