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March 28, 2025 | 09:04 pm
TEMPO.CO, Jakarta - The World Bank reported that Indonesia’s tax revenue performance is still far below the target, in a newly published report. Inside the report titled “Estimating Value Added Tax (VAT) and Corporate Income Tax (CIT) Gaps in Indonesia” published on March 17, 2025, the World Bank revealed that the value-added tax (VAT) and domestic corporate income tax (CIT) in Indonesia are still below their potential.
The report shows the existence of gaps in tax revenue for VAT and domestic CIT in Indonesia. "The gaps in VAT and CIT accounted for 6.4 percent of GDP on average between 2016 and 2021," the World Bank wrote in the report, quoted on Friday, March 28, 2025.
The World Bank measured the data by analyzing compliance gaps and policy gaps. The compliance gap refers to all sources of non-compliance, including “underreporting, fraud, insolvencies, bankruptcies, and administrative errors.” Meanwhile, the policy gap refers to the value of lost tax revenue as a result of government decisions not to collect such tax bases.
Based on World Bank data, the average actual tax revenue in Indonesia from 2016 to 2021 amounted to Rp800 trillion or 5.4 percent of gross domestic product (GDP). Meanwhile, the potential tax revenue based on applicable policies revealed that Indonesia should have collected Rp1,348 trillion or 9.1 percent of GDP. Even referring to the ideal benchmark scenario, tax revenue should have been Rp1,744 trillion or 11.8 percent of GDP.
However, due to compliance gaps, Indonesia lost potential revenue of Rp548 trillion or 3.7 percent of GDP. Not only that, the World Bank stated that policy gaps also caused potential lost tax revenue of Rp396 trillion or 2.7 percent of GDP.
If broken down, during the 2016-2021 period, the average compliance gap—or VAT that should have been paid compared to the VAT actually paid—reached 43.9 percent. This figure is equivalent to 2.6 percent of Indonesia's GDP, or Rp387 trillion.
Meanwhile, the World Bank calculated the average VAT policy gap to be Rp138 trillion. Meaning, Indonesia lost the potential VAT revenue of Rp525 trillion due to compliance and tax policy gaps.
As for domestic CIT for the same period, the gap reached 33 percent, or equivalent to 1.1 percent of GDP. Which means Indonesia lost Rp161 trillion to noncompliance.
Meanwhile, according to the international financial institution, the average lost revenue due to policy gaps reaches Rp258 trillion. This means Indonesia lost potential domestic CIT revenue of Rp419 trillion due to compliance and policy gaps.
"Overall, non-compliance had a larger impact on VAT revenue than the policy decisions," the World Bank wrote in the conclusion of the report. Conversely, policy gaps have a greater impact on domestic CIT revenue compared to non-compliance.
According to the World Bank, VAT and domestic CIT, which are the main sources of domestic tax revenue, are not working to their full potential. However, in 2021, VAT and domestic CIT contributed approximately 66 percent of total tax revenue, equivalent to about 6 percent of GDP.
Editor’s Choice: World Bank: Indonesia's Tax Revenues Among the Worst in the World
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