There are various factors in Indonesia that can support tax revenues performance in a sustainable way to promote development. These include stable GDP growth at moderate figures, the availability of a consumption-based economy and the middle class, decent investment flows, demographic bonuses (in which the productive age population is more than the non-productive population), continuously improving governance to the consistency of per capita income growth.
Unfortunately, all of these elements have not been transformed into the ability to mobilise domestic revenues. With a tax-to-GDP ratio that has never reached more than 12% over the past decade, Indonesia is one of the lowest performing countries in the Asia Pacific. The COVID-19 pandemic has added additional pressure, causing the tax-to-GDP ratio to fall to 8.3%.
Many factors have led to this issue, such as the unbalanced tax mix, the informality of work and the shadow economy, as well as high tax expenditure. The government has risen to the challenge. Various improvements in terms of law, policy and administration are continuously underway.
However, one fundamental aspect may have been neglected in these diverse measures, which is the absence of a ‘tax society’ in Indonesia. Tax society, in this respect, refers to a society fully aware and well-informed about taxes.
The need to improve tax society in Indonesia
The low awareness of the important role of taxes is very likely due to Indonesia’s fiscal history. Since its independence, Indonesia has experienced multiple booms in the natural resources sector. Despite their decreasing significance, these blessings strongly add to state revenues. Consequently, they also slow down the urgency of tax reforms and weaken the promotion of tax awareness for the public.
The level of taxpayers’ participation and compliance remains low. As of 2020, registered individual taxpayers amounted to 42.4 million. This figure is approximately 32% of the total labour force in Indonesia of 130 million people. Interestingly, only 13.8 million registered individual taxpayers are required to submit tax returns in real terms.
This indicates two things. First, numerous parties have yet to enter the system and are undetected by the authorities’ radar. Second, even if they are registered, they are not fully compliant in fulfilling their tax obligations, even when it comes to the simplest obligation of filing their tax returns.
In addition, tax experts in Indonesia are very limited in number and mostly work for the authorities. In 2020, there were only around 5,500 registered tax consultants in Indonesia. Indonesia’s population of 270 million implies that one tax consultant must serve around 48,000 residents.
In short, the ideal tax system backbone, which requires immense, well-informed, and balanced interactions among stakeholders, is not yet in place.
In light of the fundamental issues outlined above, the government has undertaken strategic measures. Tax education programs such as early tax inclusion, launching a taxation journal, increasing the role of tax dissemination officers, and celebrating a national tax day have been implemented since 2016. Moreover, there are collaborations with university tax centres.
Nevertheless, it is next to impossible for the tax authorities to fly solo in the quest to establish the ideal tax system. The rewards of these programs are also difficult to reap in the short term. Therefore, we at DDTC have taken the initiative to actively participate in establishing a tax society.
DDTC’s contributions to creating a tax society in Indonesia
Since its inception, DDTC has always been fully aware that tax consultants are a noble and honourable profession (officium nobile). The officium nobile concept derives from the assumption that, in essence, a profession should not be solely profit-oriented, but also focus on how to contribute or dedicate their expertise for tax purposes.
Considering the reality of the conditions in Indonesia, DDTC takes an active role in promoting inclusive tax education and a better tax system for all elements of society, including in terms of eliminating information asymmetry in society.
DDTC gives back significant yields from our professional services to the Indonesian tax society and all stakeholders in the tax sector. DDTC strongly believes there is much more to this recurrent cycle than commercial aspects and, in turn, we will lay the cornerstone for an ideal tax ecosystem.
DDTC views pro bono work as more than mere corporate social responsibility or free-of-charge professional services. Instead, pro bono is inherent in DDTC's resolute company vision and missions, regardless of the merits and demerits of these activities. Currently, DDTC has at least three groups of activities closely related to pro bono, namely tax knowledge sharing, providing scholarships and sponsorships, and establishing good relations with the academic environment.
ITR’s Asia Pro Bono Tax Firm award at the Asia-Pacific level, recently received by DDTC, serves as a motivator for us to consistently contribute. We would like to thank all parties that have collaborated with DDTC to date in pursuit of a common goal of inclusive tax education.
