STATEMENT OF POSITION FROM THE INDONESIAN TAX JUSTICE FORUM
The wave of protests spreading across many regions in Indonesia is like a ticking time bomb, triggered by the government’s poor management of the country. It reflects the growing public frustration over worsening social and economic problems, alongside political dynamics that fail to protect the people’s interests. One of the key demands voiced by civil society in the People’s Demands 17+8 is for a fairer tax reform. This includes ensuring a balanced transfer of the national budget (APBN) from the central government to local regions, reviewing tax hike plans that burden ordinary citizens, and the urgent need for a tax system that is just and people-centered. We, the Forum Pajak Berkeadilan Indonesia/FPBI [Indonesian Tax Justice Forum], observe that the government has not yet addressed fundamental problems in Indonesia’s tax system:
1. Haphazard Management of the State Budget (APBN)
For more than a decade, Indonesia’s fiscal space has shown little improvement. The tax ratio remains stagnant at around 10–11%, far below the Asian average. Meanwhile, central government spending continues to climb, reaching Rp 3,786 trillion in the 2026 Draft State Budget (RAPBN). Around one-third is allocated to populist priority programs such as Free Nutritious Meals (MBG), Red and White Cooperatives, community schools, downstream processing, and energy subsidies—whose benefits remain questionable for the wider public. Reliance on debt has also deepened, with borrowing projected at Rp 781.6 trillion in the 2026 RAPBN.
2. Incomplete Tax Reform
The government is aggressively raising tax rates—such as increasing Value-Added Tax (VAT) to 12% and doubling or tripling Land and Building Tax—amid waves of layoffs and economic hardship faced by the public. Yet, it has failed to address core structural issues: the large informal sector (59.40% as of February 2025), the unfair distribution of tax burdens, and the lack of transparent policies. The Core Tax Administration System (CTAS) also remains underutilized.
The situation is worsened by tax avoidance practices by multinational corporations, especially through profit shifting to low-tax jurisdictions. This deprives Indonesia of billions of rupiah in potential revenue each year. The tax ratio in the first half of 2025 dropped to 8.42%, down from 9.49% in the same period last year—a stark signal of a deepening crisis in the state’s capacity to finance public services, infrastructure, and poverty reduction.
In light of the cabinet reshuffle on September 8 and the appointment of Purbaya Yudhi Sadewa as the new Finance Minister, FPBI urges him to demonstrate real commitment through the following actions:
- Finish a Fair and Progressive Tax Reform
- Introduce wealth tax, inheritance tax, and other progressive tax instruments targeting the ultra-rich and large corporations.
- End tax amnesties, tax allowances, and other incentives that widen inequality between the wealthy and the public. Instead, provide incentives that build a care economy, supporting women and vulnerable groups as active economic participants.
- Advocate for a UN Tax Convention to eliminate all forms of international tax avoidance.
- Create Fiscal Justice Between Central and Local Governments
- Cancel planned cuts to Transfers to Regions (TKD) to reduce the gap between central and local fiscal capacity.
- Ensure that local governments have sufficient fiscal space and capacity to deliver equitable public services.
- Guarantee that both tax reform and central–local fiscal transfers are invested in sustainable development, by:
- Shifting budget allocations away from extractive-focused programs toward those supporting long-term social, economic, and environmental well-being
- Reinvesting revenues from extractive activities into environmental restoration and protection of remaining natural resources
- Treating protection and restoration as long-term investments, backed by clear and adequate budget allocations.
- Rebuild Public Trust Through Tax Accountability
- Ensure policy transparency and strengthen civil society participation in tax policy-making and oversight
- Combat corruption, tax avoidance, and tax evasion by multinational corporations through stronger enforcement of Automatic Exchange of Information (AEOI), Beneficial Ownership (BO) disclosure, and Country-by-Country Reporting (CbCR).
- Prioritize Public Spending for People’s Well-Being
- Direct tax revenues to fund priority sectors that reduce inequality and promote ecological justice: education, healthcare, social protection, care services, a just energy transition, and decent work opportunities.
- Review populist projects such as MBG, Danantara, and Red and White Cooperatives that risk undermining long-term fiscal sustainability.
Contacts
- PRAKARSA : amaftuchan@theprakarsa.org
- PWYP Indonesia : meliana@pwypindonesia.org
- INFID : snimah@infid.org
- IGJ : audina@igj.or.id
- PUSKAHA : puskahaindonesia@gmail.com
- PENABULU : sugiarto.santoso@penabulu.id
About Forum Pajak Berkeadilan Indonesia/FPBI [Indonesian Tax Justice Forum]
Forum Pajak Berkeadilan Indonesia/FPBI [Indonesian Tax Justice Forum] is a coalition of civil society organizations established in 2013 to push for a fair and transparent tax system that serves public needs. It was formed in response to growing inequality in Indonesia’s tax regime. FPBI brings together NGOs, academics, and activists focusing on fiscal justice, accountability, and equitable wealth distribution. FPBI has played a critical role in opposing the Tax Amnesty Bill, which risked legitimizing harmful tax practices. It also advocates for the establishment of an Anti-Illicit Financial Flows Task Force to address suspected financial crimes involving illegal funds, particularly in the extractive sector.
ADDITIONAL INFORMATION
Tax Avoidance
Tax avoidance and tax evasion exacerbate the problem of the informal economy. Tax avoidance involves the use of legal loopholes to minimize tax liabilities, while tax evasion involves illegal actions such as underreporting income or falsifying documents. A World Bank study in late 2024 revealed that around 25 percent of formal companies in Indonesia were engaged in tax avoidance, with evasion rates ranging from 20–38 percent depending on perceptions of tax administration as an obstacle. The latest research in 2025 shows that factors such as corporate financial distress, high profitability, and political connections drive these practices, particularly in the transportation and manufacturing sectors.
Tax Inequality against Women and Vulnerable Groups
The implementation of a tax system based on the assumption of neutrality disproportionately impacts women. A housewife who does not work and lacks social security and protection struggles to afford basic needs such as laundry soap, diapers, and other essentials due to the direct impact of the VAT increase. To meet daily needs, she faces trade-offs between cutting education expenses or compromising family nutrition. As women and vulnerable groups, they have no option for tax avoidance, no tax holidays, and are forced to sacrifice their basic needs merely to survive. Therefore, the government must increase the tax ratio through alternative tax instruments that do not erode the purchasing power of the poor and the working class. In addition, the current income tax system automatically provides greater non-taxable income deductions for men as heads of households, reinforcing gender inequality.
Widening Inequality from Reckless Fiscal Policies
Household expenditure inequality in Indonesia between 2019–2022 shows an upward trend, with the GINI ratio rising from 0.382 in 2019 to 0.384 in 2022. Oxfam data places Indonesia, a middle-income country, at 105th out of 164 countries in the Commitment to Reducing Inequality (CRI) Index. Total spending on education, health, and social protection accounts for only 36 percent, putting Indonesia at 95th out of 164 countries. Public service coverage ranks even lower at 116th, reflecting minimal spending to address inequality.
Reckless fiscal policies with misallocated budgets, directed to costly but poorly planned priority programs, have resulted in the haphazard exploitation of the state budget (APBN). Yet, sound management and allocation of revenue from taxation favoring the public interest is crucial to reducing inequality.
Tax Revenue Performance up to March 2025 and Its Impact on National Debt
- By the end of March 2025, tax revenues reached around IDR 400.1 trillion, including taxes, duties, and excise. However, this remains below the 2025 State Budget (APBN) target. In February 2025, tax revenues stood at only IDR 187.8 trillion, or 8.6% of the annual target, marking a 30.19% decline compared to the same period last year. Factors behind the shortfall include:
- Economic and Key Sector Decline: Reduced revenue from the mining, industrial, and financial services sectors, driven by global uncertainty and domestic policies.
- System Disruptions and Restitution: Increased tax restitutions and technical issues in the CoreTax system contributed to early-year declines.
- Early-Year Budget Deficit: The overall drop in state revenues created a rare early-year deficit, forcing the government to increase new borrowing to finance spending, including infrastructure and public services. The Minister of Finance acknowledged that the 2025 tax revenue target is unlikely to be met, making debt the primary instrument to close the fiscal gap.
This condition is increasingly concerning from a financing standpoint. Interest payments alone now consume more than 20% of total state revenue, and when combined with principal payments, the debt burden exceeds 40% of state income. Even worse, Indonesia’s sovereign bond yields, at around 7%, make the country less competitive than other Asian nations while worsening long-term debt costs.
Instead of strengthening the fiscal foundation through progressive and fair tax reform, the government continues to deepen reliance on debt instruments. In this context, debt is not merely a short-term fiscal solution but a symptom of the failure to restructure the deeply entrenched tax system.