Indonesia's budget deficit in 2016 is estimated to have reached 2.46 percent of the nation's gross domestic product (GDP), below the government's forecast of 2.7 percent of GDP and at a safe distance from the legal cap of 3.0 percent of GDP that is stipulated by Indonesian law. This is a positive matter that is supported by modestly growing tax revenue. In full-year 2016 tax revenue realization reached IDR 1,105.2 trillion (approx. USD $83 billion), only 81.6 percent of the target that was set in the Revised 2016 State Budget (APBN-P 2016) but slightly higher than tax revenue realization in the preceding year.
Indonesia's tax amnesty program played a big role in 2016 in terms of tax revenue realization. In the first two phases of the program (covering the months July-December) the government collected an additional IDR 107 trillion (approx. USD $8 billion) worth of tax revenue through the tax amnesty program, nearly 10 percent of total tax revenue in 2016. This would therefore also imply that without the tax amnesty program, Indonesia's tax revenue realization would have been very weak last year, and, pushing the government's budget deficit above the 3 percent of GDP cap (provided the government would not adjust its spending programs).
As such, the tax amnesty program has been a savior that added the necessary government funds and led to the larger taxpayer database in Indonesia. Around 612,000 taxpayers joined the program declaring a total of IDR 4,295.9 trillion (approx. USD $321 billion) in previously unreported wealth in the July-December 2016 period. Although tax compliance remains low in Indonesia, the tax amnesty program can therefore be labelled a success (but it needs to be mentioned that asset repatriations into Indonesia have been very weak).
Will the tax amnesty program have long-term effects? The answer to this question we will learn in 2017. The larger taxpayer database should lead to structurally higher tax revenue for the government. In a few months time we can see the first signs whether this is indeed the case. Only if the tax amnesty program, which runs until 31 March 2017, has long-term impact on tax revenue, then we can really label it a success. However, if it only leads to a temporary surge in revenue collection then it would have had limited value.
Prior to the tax amnesty program, there were only 27.6 million registered taxpayers in Indonesia, while the nation's workforce numbers 115 million (and the total population numbers 255 million). This explains why Indonesia has a very low tax-to-GDP ratio at around 11 percent (this is a major problem as tax revenue is the largest source for total government revenue).
Currently, most of Indonesia's tax revenue originates from a relatively small group of big corporations. The degree of tax compliance is highly related to the degree of monitoring: if the tax office is carefully watching, then corporations (or individual taxpayers) will make sure that they take care of their tax obligations. In Indonesia, the "big fish" (consisting of big local companies as well as foreign owned companies, known as PT PMA) are carefully monitored, while millions of "small and medium fish" are neglected. This implies there exists both a challenge and opportunity for Indonesian authorities: there is great potential to raise the nation's tax revenue but authorities will need to enhance tax monitoring (including the monitoring of tax officials who may try to gain advantage through corrupt behavior).
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