Time for Tax Hunt

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  • TEMPO.CO, Jakarta - The poor performance of the government in collecting tax revenues is inseparably linked to the weak economy. The government needs to immediately evaluate the effectiveness of its fiscal policy in driving the domestic economy to avoid adverse effects at a time when the global recession is the recession is worsening.

    Data on the realization of the 2019 state budget shows that tax revenues as of August had only reached Rp801.16 trillion. This is only 50.7 percent of the Rp1,577.56 trillion target. The Taxation Directorate-General has recently claimed that revenues as of the end of October had exceeded the Rp1,000 trillion mark. Even if this figure is accurate, there is still a shortfall in the realization of 37 percent that will have to be made up by the end of the year.

    The problems with collecting tax revenues are a direct impact of the weakness in the economy. The trade war between the United States and China has triggered a slowdown in the global economy over the last two years. The demand for goods has fallen, and the price of commodities has dropped sharply. In our nation, the manufacturing, mining and trade sectors have been affected the worst. Data shows that taxation income from these three sectors fell sharply. Growth in the financial, transportation and storage sectors is also not as high as last year.

    The size of this taxation revenue shortfall will lead to this year’s budget deficit soaring from the projected 1.86 percent to between 2 and 2.2 percent of gross domestic product. A deficit this size is not actually too bad. The state finance law allows for it to be as high as 3 percent of GDP. And at a time of sluggish investment, in order to preserve economic growth, state spending must not fall.

    However, the government must remain cautious in making up the shortfall in state revenues. Increasing government debt by issuing state bonds (SBN) is not without risk. Foreign ownership of SBNs, around 30 to 40 percent, is dangerous. The economy would suffer a shock if they all decided to relinquish their investments.

    Bonds with higher yield are also a strong rival for the banks in attracting people’s funds. The impact can be seen from the tight bank liquidity that has resulted in stagnation in the credit needed to support production and consumption.

    The government also needs to issue policies to make it easier for companies to do business, including simplifying the tax system. The administration of taxation in our nation has been ranked as the most complicated in Southeast Asia.

    According to the latest report entitled ‘Economic Openness: Indonesia Case Study’ produced by the Legatum Institute, a global risk policy institute based in London, businesses operating in Indonesia have to pay 43 different types of taxes, far more than in our neighboring countries. Deregulation and reduction of bureaucracy are urgently needed to make it easier to do business and to invest.

    The difficulty in increasing state revenues must be balanced with a proper funding policy. The government needs to ensure that spending is effective in accelerating economic growth. The quantity and quality of state spending, except on salaries and subsidies, need to be increased.

    Conversely, subsidies that have failed to reach the right targets, such as fuel subsidies, should be reduced. President Joko Widodo should have the courage to take less popular measures, including reducing fuel subsidies, in order to improve the economic situation.

    Read the Complete Story in this Week's Edition of Tempo English Magazine