One strategy of Indonesian President Joko Widodo to generate more state revenues in order to enhance investments in social and economic development of Indonesia is by improving the country’s tax collection system.
As the middle class as well as number of companies that are active in Indonesia has risen rapidly in recent years, it is disappointing that tax collection targets are rarely met in Southeast Asia’s largest economy: tax compliance is low, while corruption among civil servants (tax collectors) remains a structural problem.
Indonesia’s current tax-to-GDP ratio lies in the range of 12 and 13 percent; a low figure compared to developed countries (that generally have +25 percentage point ratios) and emerging markets.
For example, Indonesia’s tax-to-GDP ratio is much lower than the ratio in Thailand (17.0 percent), Malaysia (15.5 percent), Philippines (14.4 percent), Singapore (14.2 percent), and Vietnam (13.8 percent). Such low tax-to-GDP ratios signal that governments’ financial management is inadequate (and – often the case – plagued by corruption).