Increase in Tax Ratio and Its Impact on the Economy

INDONESIA is 1 of the 20 countries with the largest economies commonly referred to as the G20 countries. The indicator in assessing an economy as a whole is by calculating the Gross Domestic Product (GDP) in a country. This is the easiest way to see the state of a country’s economy.

GDP is calculated using the value of all goods and services produced within a country and at a given time. One of the components of GDP is government spending or usually in macroeconomics is given the symbol G. The government spends using income which is mostly received through tax revenues.

Tax revenue is the largest source of spending with a value of around 68% of total government spending (Financial Notes on the 2017 RAPBN-P) which makes taxes the main backbone to meet government spending. If tax revenues can be maximized, then state spending will also be greater.

One indicator to see the performance of tax revenues is to look at the value of a country’s tax ratio. If you look at current conditions, Indonesia is faced with the fact that the value of Indonesia’s tax ratio is quite low. The value of Indonesia’s tax ratio in 2015-2017 only reached 10-11% and this value has even decreased since 2013 which could touch almost 12%. This shows that Indonesia’s tax revenue is small compared to the national GDP.

Indeed, the tax ratio is not the only indicator in looking at economic performance, especially in the field of taxation, because in macroeconomics no indicator is most correct and most appropriate in assessing an event. However, by looking at the value of Indonesia’s tax ratio, we can make an easy assessment that Indonesia needs an increase in the tax ratio to increase tax revenues and accelerate the pace of economic growth.

To see Indonesia’s taxation conditions, we must not turn a blind eye to the conditions of other countries. Comparing economic conditions between countries must be done to see and measure the ability of our country with other countries. Indonesia as a member of the G20 and ASEAN must compare the tax ratio with members of the G20 and ASEAN to see Indonesia’s ability compared to other countries.

Within the scope of the G20 countries, Indonesia’s tax ratio is still below the average of the G20 countries, while within the scope of ASEAN, Indonesia’s tax ratio is also below the average and only higher than Myanmar. Even with countries that are close to us, such as Malaysia, Thailand, and Singapore, we are still 5-6% behind. This shows that we need to manage and increase our tax ratio to increase national tax revenues.

Efforts to increase the tax ratio are not an easy thing. This requires support from various parties to achieve the target tax ratio (in a narrow sense/tax revenue only) in 2017 of 10.7% and 11.3% (in a broad sense / including PNBP SDA oil and gas and mining) and the long term to 2020, which is 12.4%-13.4% (NK RAPBN-P 2017).

INCREASED TAX RATIO

Some things can be done to increase the tax ratio, among others, first, by making the public more trust in the tax authorities and the Directorate General of Taxes (DGT). What can be done is to provide examples of obedience in paying taxes for Civil Servants (PNS) and government officials, tightening DGT’s internal control, reducing corruption at DGT, and other preventive matters.

These little things unknowingly affect people’s trust in paying taxes, such as the saying because a speck of Nila is damaged by a pot of milk, which means that because of a small mistake that seems meaningless, the whole problem becomes chaotic and messy.

Therefore, the public is expected to help in efforts to improve Indonesia’s clean and honest taxation system by reporting to the DGT through the DGT whistleblowing system so that DGT has more integrity and competence and is trusted by the public.

Second, by providing early education about taxes and nationalism. This has a long-term effect because it will make the younger generation aware of the importance of taxes and nationalism. If someone is a nationalist, then he will obey in paying taxes. Because taxes are a form of nationalism because taxes means we are building our country.

This early education about taxes can be done at the upper secondary level with easy and fun material so that it is not burdensome but can increase awareness about taxes. The government should support this by preparing training for teaching staff, which may be from tax officials.

Third, with the technical efforts that can be done by the DGT. This is such as maximizing the results of the tax amnesty, improving the system, increasing the database, reviewing tax concession policies to be more effective, increasing resources for auditing high-risk taxpayers (WP) with great potential with third-party data, increasing law enforcement efforts. on tax evasion, and other technical efforts that can be done by the DGT and the government.

Why is the effort to increase the tax ratio so important for the Indonesian economy? Because macroeconomically, an increase in a country’s income will make state spending (G) larger. An increase in G will make the total GDP increase beyond G if the increase in government spending is given to the domestic sector which will create a multiplier effect that makes the economy grow more.

In simple terms, if government spending increases because tax revenues increase by Rp. 1,000, then the increase in GDP will be more than Rp. 1,000 if this increase in spending is channeled to domestic spending. Therefore, the increase in the tax ratio has a large impact on the economy as a whole. If the tax ratio increase is only 1% of Indonesia’s GDP which is around Rp. 12,000 trillion, it can be seen the impact it will have on the economy.

Although the tax ratio is not the most correct indicator in measuring a country’s taxation capacity, it is an easy-to-use indicator. Therefore, let us work hand in hand to be more aware and more tax compliant to increase the tax ratio which will make the Indonesian economy bigger and faster.

This is to achieve Indonesia’s target to become the country with the 5th largest economy in 2045 during 100 years of Indonesia’s independence, therefore to achieve this we must increase our awareness of paying taxes so that the tax ratio can increase.

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