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March 28, 2025 | 01:02 pm
TEMPO.CO, Jakarta - The World Bank revealed that Indonesia's tax revenue performance is still far below target. Value-added tax (VAT) and corporate income tax (CIT) collections are considered below potential.
Indonesia's tax revenue to gross domestic product (GDP) ratio is among the lowest in the world, standing at only 9.1 percent in 2021. According to the World Bank, this figure is much lower than other regional middle-income countries such as Cambodia at 18.0 percent, Malaysia at 11.9 percent, the Philippines at 15.2 percent, Thailand at 15.7 percent, and Vietnam at 14.7 percent.
This was stated in a report titled Estimating Value Added Tax (VAT) and Corporate Income Tax (CIT) Gaps in Indonesia, which was published on the World Bank's official website on March 17, 2025. The World Bank wrote that, on average, the estimated VAT and CIT gaps reached 6.4 percent of GDP, or Rp944 trillion from 2016 to 2021, as quoted from the report on Friday, March 28, 2025.
Quoting the report, in the 2016-2021 period, the average compliance gap between VAT that should have been paid and VAT actually paid reached 43.9 percent. This number is equivalent to 2.6 percent of Indonesia's GDP. This compliance gap amounts to Rp386 trillion in nominal terms.
Meanwhile, for corporate income tax (CIT) in the same period, the average compliance gap between the tax that should have been paid and the tax paid reached 33 percent of the total CIT obligation, or equivalent to 1.1 percent of GDP. In nominal terms, the World Bank recorded an average annual income lost due to non-compliance in CIT of around Rp160 trillion.
This means that VAT and corporate income tax, the main sources of domestic tax revenue, are not fully functioning. However, in 2021, VAT and corporate income tax contributed about 66 percent of total tax revenue, equivalent to 6 percent of GDP.
According to the World Bank's study, this could be due to some factors, such as low compliance, relatively low effective tax rates, and a narrow tax base.
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