OnlinePajak

In developing countries, government services are chronically under-funded. Broadly, governments raise additional funds either through encouraging foreign investment or by increasing domestic resources such as taxation, savings, and investments. The latter approach has several advantages, including promoting local policy ownership and improving the stability of revenues through reduced dependence on foreign firms and policies.

Indonesia is the fourth most populous country in the world, with a poverty rate of 9.5% and an economic backbone of micro-SMEs (99% of all firms, and 95% of employees). To support its public services, the Indonesian government collects 86.2% of its resources from tax. However, the absolute amount of tax the government collects has tremendous room for growth, as collection rates remain stubbornly low. The reasons for low tax revenues are numerous, but one part of this problem is the often complex and manual collection process.

Tax reform and firm productivity are major policy agendas in Indonesia. OnlinePajak can help to support the government of Indonesia’s efforts to mobilise greater domestic resources, reform tax administration, and reduce tax compliance costs for firms.

In particular, if OnlinePajak were to expand the tax base by reducing evasion and informality even by a tiny amount, then it could produce substantial benefits for Indonesia. With an improvement in the tax base of one-tenth of one percent by 2028, that would generate $144m annually in additional tax revenue. Adjusting for risk, this yields an expected $35m annually in additional tax revenue for the government of Indonesia in 2028. This is in addition to other significant benefits of OnlinePajak for the government (reducing tax administration costs and the use of data for improved tax policymaking), as well as for firms (reduced tax compliance costs) and for society.