Meanwhile, domestic government records note a lower tax ratio of 10.1 percent for 2024. This discrepancy stems from differing methodologies: the Indonesian government includes taxes, customs, duties, and natural resource non-tax revenues, whereas the OECD applies a broader global standard that incorporates mandatory non-tax contributions such as social security.
The Directorate General of Taxes (DGT) acknowledges that tax collection remains far below its true potential due to extensive tax exemptions and a massive untaxed informal sector. World Bank data from 2023 indicates that Indonesia’s informal economy accounts for 36 percent of GDP, while the shadow economy comprises 28 percent. Additionally, major sectors such as agriculture contribute significantly to GDP but remain largely non-taxable.
This landscape drives a substantial tax gap (the difference between statutory tax liabilities and actual collections). The World Bank estimates this gap at 6.4 percent of GDP (around IDR 1,500 trillion or approx. USD $83 billion), split between compliance failures (3.7 percent) and policy factors like incentives (2.7 percent). Tax experts break this shortfall down into three distinct gaps:
• Non-filing gap: Failure to submit tax returns on time.
• Underreporting gap: Understating income or overstating deductible expenses.
• Underpayment gap: Failure to pay the full tax liabilities owed.
To bridge these gaps and march toward a tactical 15 percent tax ratio target, the DGT is maturing strategies to expand the tax base of Indonesia. Central to this effort is the implementation of “Coretax”, a modernized core tax administration system. Coretax establishes data interoperability, enabling seamless internal data exchange across Ministry of Finance divisions (Taxes, Customs, and Non-Tax Revenue). Furthermore, it integrates external mass data from various government agencies, institutions, and associations. This integration aims to build a structured, standardized, and validated database to improve oversight, ensure fiscal fairness, and maintain taxpayer trust.
Unfortunately, the transition to the Coretax system is accompanied by operational friction that has drawn widespread complaints from taxpayers and consultants alike. At the core of grievances are severe infrastructure bottlenecks and database integration failures. Users frequently battle system timeouts, slow rendering of crucial documents, and frustrating glitches that wipe out in-progress forms. More critically, synchronization lapses between legacy databases have caused registered corporate tax statuses to vanish, blocked national identity number (NIK) validations, and delayed the appearance of vital tax credits.
Moreover, there are rigid administrative barriers. The system’s biometric security features frequently reject valid users over minor photo discrepancies, while foreign investors face strict registration bottlenecks. Alarmingly, technical timing lags in data reconciliation have even triggered automated flags for accidental audits.
The 2027 Government Work Plan outlines seven strategic steps to achieve a tax ratio between 10.02 – 10.5 percent next year:
• Expanding the tax base by formalizing informal activities and workers.
• Enhancing Coretax data analytics to promote voluntary compliance.
• Utilizing IT-driven supervision and joint programs to reduce underreporting.
• Optimizing revenue from emerging and priority sectors (e.g., digital economy, resource downstreaming).
• Sharpening targeted and measurable tax incentives.
• Improving tax restitution management.
• Implementing a windfall tax on unexpected profits from commodity price surges.
Tax experts offer critical feedback on these policies. The Center for Indonesia Taxation Analysis (CITA) views the windfall tax as non-urgent and redundant, noting it overlaps with existing flexible corporate income tax instalment mechanisms (PPh Article 25). Conversely, the Institute for Development of Economics and Finance (Indef) emphasizes that full implementation of a Single Identity Number, matching national identity numbers (NIK) with tax IDs (NPWP), is the ultimate key to eliminating evasion and successfully capturing the shadow economy.
