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Government revenues create the space for delivering on infrastructure investments, meeting social goals and preserving macroeconomic stability. The Indonesian government recognises that revenue collections have significant potential to improve through better tax policy and administration. Indonesia has a workforce of about 122 million but only 27 million registered individual taxpayers. The complex and lengthy revenue system also poses a significant problem for business. Indonesian firms will on average have to make 54 tax payments a year compared with 25 in East Asia and 12 in OECD countries.
Revenue mobilisation is an extremely difficult policy challenge. AIPEG pursues an integrated approach to tax administration and increasing the revenue base:
- Strategy: A medium-term strategy for effective tax policy and administration.
- Delivery and Administration: A move to more risk-based approach to increase tax registrations, lodgements and payments.
- Enabling environment: Strengthening capacity to deliver reform, administer the revenue system and foster an expanded, engaged and voluntary taxpayer base.
Good budget planning requires a medium and long-term outlook, alongside annual budgets. In 2015, AIPEG conducted a major macro-fiscal study to assess the potential impacts of slower economic growth and increasing budget pressures. The study found a fast growing gap between revenue and spending. In the next few years, better revenue policies and more efficient administration will be needed to enable government spending, including in priority areas of infrastructure and social assistance. AIPEG is working together with the government on revenue and spending reform options recognising that success calls for a sustained effort over several years.