Indonesia’s incoming president and vice-president, Prabowo Subianto and Gibran Rakabuming Raka, have unveiled an ambitious tax plan to boost the country’s tax revenue to Gross Domestic Product (GDP) ratio to 23 per cent from its current level of just over 10 per cent. This bold initiative centers around the establishment of the State Revenue Agency (BPN), aimed at centralizing state revenue matters under the direct supervision of the president.
While the target of 23 per cent tax revenue to GDP ratio is significantly higher than the current rate and the regional average, challenges lie ahead. Indonesia’s shadow economy, accounting for 26 per cent of the total economy in 2023, presents a major hurdle in tax collection efforts. The BPN’s success hinges on its ability to effectively address this issue by leveraging data-sharing mechanisms and autonomy to track financial activities, especially in digital transactions.
Furthermore, the autonomy and credibility of the BPN’s leadership will play a critical role in shaping its effectiveness. A transparent and merit-based selection process for key leadership positions is essential to ensure professionalism and efficiency in managing state revenues.
Ultimately, the success of Indonesia’s tax reform through the BPN will depend on sustained commitment, strategic planning, and a steadfast focus on enhancing state revenue. Without genuine dedication and strong leadership, this initiative risks falling short of its transformative potential, merely serving as a symbolic gesture rather than a pragmatic solution to bolster Indonesia’s fiscal performance.
