Driving Tax Reform Based on Three Pillars Jakarta – The Indonesian Tax Justice Forum Coalition (FPBI) has compiled a White Paper titled “Tax Reform Agenda: The Road to Tax Justice and Economic Equity.” This paper elaborates on the current issues and challenges in the tax system, principles of tax reform for economic and social justice, international best practices in tax reform, and strategies for implementing tax reform in Indonesia.
Meliana Lumbantoruan, one of the authors of the paper, explains several current tax issues covered in the white paper. Indonesia’s stagnant tax ratio remaining below 15% for over two decades reflects the country’s weak capacity to mobilize domestic resources for development financing.
The high dependence on debt to cover budget deficits not only narrows fiscal space but also increases national economic vulnerability, particularly as infrastructure financing and mandatory expenditures continue to rise.
These structural problems become more urgent when connected to policy choices that often do not prioritize fairness. The increase in Value Added Tax (VAT) and the reintroduction of the tax amnesty program show that the orientation of the tax system still leans toward short-term efficiency rather than structural reform based on equity. Meliana, Deputy Director of PWYP Indonesia, stresses the importance of reorienting tax reform toward a more progressive and fair approach.
“The state’s capacity to mobilize taxes remains limited, while the debt burden continues to rise. Therefore, future tax reform should not only focus on revenue generation but must also address inequality through justice-based policies, such as wealth taxes for the ultra-rich and evaluations of mistargeted fiscal incentives,” she stated.
She further noted that the issue of tax justice is not only a national agenda but also part of global debates. In 2024, the G20 forum in Brazil began openly discussing global taxes for billionaires, including a global minimum wealth tax. However, Indonesia lacks a legal framework to impose taxes on ultra high net worth individuals, despite the significant revenue potential.
As part of the Coordinating Committee of Tax and Fiscal Justice Asia (TAFJA), Meliana also emphasizes the importance of Indonesia playing a strategic role in advocating for a fairer global tax agenda.
“In Asia, fiscal gaps and cross-border tax avoidance practices have caused developing countries to lose trillions of dollars annually. Indonesia must be a driving force in advocating for fair and participatory global tax regulations, including supporting the establishment of a UN Tax Convention that accommodates the interests of Global South countries,” she explained.
Echoing Meliana’s views, Hendri, another CSO representative and co-author of the white paper highlighted tax governance during a white paper discussion titled “Policy Proposal for Tax Justice: Institutional Reform, Tax Base, and Redistribution” in Jakarta, May 27, 2025. He emphasized that transparency and accountability in tax use are fundamental for building a fair, sustainable, and trusted tax system. By strengthening fiscal transparency, the government can enhance voluntary tax compliance and the overall legitimacy of tax policies.
There are four structural challenges in tax governance: the low tax ratio and suboptimal compliance; a narrow tax base; limited coverage of the informal sector; and high levels of tax avoidance and illicit financial flows. Corruption cases within the tax authority have also eroded public trust.
Regarding the tax system, Hendri presented several recommendations: digital transformation and automation, strengthening Indonesia’s position in global negotiations, enhancing human resource capacity at the tax office (DJP), improving accountability of tax officials, developing a measurable reform action plan, adjusting equitable tax rates, forming public consultation forums, establishing a special anti-tax avoidance task force, increasing fiscal data transparency and publication, and enhancing sectoral data and analysis.
PWYP Indonesia and the FPBI alliance, through the 2025 Tax Reform White Paper, call for tax reform to include three main pillars: (1) expanding the progressive tax base, including wealth and carbon taxes; (2) strengthening tax administration and law enforcement; and (3) increasing transparency and public participation in fiscal policymaking.
This step is not just about achieving short-term revenue targets, but about rebuilding Indonesia’s fiscal foundation to be sustainable, equitable, and capable of funding inclusive development and withstanding global crises.
Overall, the FPBI white paper provides policy recommendations to the government. The ten key recommendations are:
- Prioritize digital transformation and automation in the tax system. Page 3 FPBI White Paper: Driving Tax Reform Based on Three Pillars
- Actively engage in international negotiations to build a fairer tax system for developing countries.
- Improve human resource capacity in taxation.
- Establish clear procedures to enhance the accountability of tax officials.
- Develop a comprehensive and measurable tax reform action plan aligned with national development goals.
- Amend Law No. 36 of 2008 on Income Tax to add progressive rates and introduce a new wealth tax rate for high-income individuals.
- Establish public consultation forums involving civil society organizations, the public, and businesses in tax policy formulation.
- Set up a special task force to investigate tax avoidance cases.
- Collaborate with independent bodies to evaluate and transparently present tax data.
- Work with the Central Statistics Agency (BPS) to enhance provisions in Law No. 28 of 2007, enabling the DJP to publish annual reports on tax compliance and revenue changes by sector. (ML/LS)
Download the White Paper at: https://bit.ly/4kdteIw?r=qr