Tax Revenue Set Relatively High

KOMPAS/JUMARTO YULIANUS

Residents shop for basic goods that are sold in low-cost market activities to control food inflation after the increase in fuel oil prices at the Kamboja Field, Central Banjarmasin, Banjarmasin City, South Kalimantan, Thursday (15/9/2022).

JAKARTA, KOMPAS — Amidst the threat of inflation and global economic uncertainty, the government and the House of Representatives have set a high target for tax revenue in the draft 2023 state budget. The target can be achieved only if household spending increases and inflation is kept in check.

Based on the agreed assumptions of the 2023 state budget working team (Panja) from the House Budget Committee (Banggar), the tax revenue target has been set at Rp 2.02 quadrillion (US$135.26 billion), Rp 4.3 trillion higher than the Rp 2.01 quadrillion initially proposed for the draft 2023 state budget

The figure includes upward revisions to a number of revenue components, including value added tax (VAT), which was increased from Rp 740.1 trillion to Rp 743 trillion, an increase in import taxes from Rp 47.3 trillion to Rp 47.5 trillion, and an increase in export taxes from Rp 9 trillion to Rp 10.2 trillion.

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The VAT revenue target was increased sharply, up 24.04 percent from Rp 599 trillion in the 2022 state budget.

Research manager Fajry Akbar from the Center for Indonesia Taxation Analysis (CITA) said in Jakarta on Thursday that next year’s VAT revenue target could be achieved if the government met the economic growth and inflation targets in the 2023 state budget.

The Finance Ministry and the House Budget Committee had agreed to set an economic growth target of 5.3 percent and an inflation rate of 3.6 percent.

"Economic growth in Indonesia still follows in line with household spending," he added.

Fajry also pointed out that the price hike for subsidized fuel (BBM) that occurred in the third quarter of 2022 could result in a higher consumer price index (CPI), which would in turn cause a decrease in tax revenue from household consumption.

If consumption continues to decline due to high inflation, the VAT revenue would also fall.

KOMPAS/RONY ARIYANTO NUGROHO

Finance Minister Sri Mulyani Indrawati during a Working Meeting with Committee IV DPD RI, Jakarta, Thursday (25/8/2022). Sri Mulyani explained the state's financial condition.

Inflationary risk

The government is fully aware of the magnitude of the impact that the fuel hike can have on inflation.

Coordinating Economic Minister Airlangga Hartarto has even projected that inflation in 2022 will be higher than economic growth. He has encouraged local administrations to take active measures in curbing inflation this year.

Airlangga said the recent fuel hike was expected to increase inflation by between 1.6 and 2 percentage points above the government’s range of 4.5-4 percent. "We have to be prepared for this year's inflation rate to be slightly higher than this year's growth rate," he said.

As a consequence, he said, the increase in administered prices and other price fluctuations should be strictly controlled so that people’s buying power would not be affected.

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The government is also trying to minimize the impacts of the subsidized fuel hike, such as by reallocating 2 percent of the regional transfer funds (DTU) to social assistance programs, including a public transportation subsidy to prevent a sharp increase in the prices of basic needs.

Finance Minister Sri Mulyani Indrawati said next year’s tax revenue target was based on an optimistic scenario of economic normalization for 2023. In line with the assumption of economic recovery in 2023, VAT was one of the revenue components that had a large growth potential.

“VAT will support tax revenue growth next year in line with the belief that the consumption-based economy will grow. Given a relatively more stable economy, VAT will increase in line with economic growth," Sri Mulyani told a meeting with the House Budget Committee on Wednesday.

She added that another factor that was expected to push up VAT receipts was Law No. 7/2021 on the harmonization of tax regulations, which included a stipulation to increase the VAT rate from 10 percent to 11 percent.

Sri Mulyani said the 2023 tax revenue target did not take into account the surge in global commodity prices.

This article was translated by Hendarsyah Tarmizi.