Indonesia’s economy, the largest in Southeast Asia, hit a milestone last year by reaching $1tn, yet the mood wasn’t celebratory as the government continued to miss its revenue targets.
Gross domestic product was an estimated $1.004tn in 2017, but economic growth was probably lower than the 5.2% initially projected, according to figures released by Finance Minister Sri Mulyani Indrawati on Tuesday.
Despite having the fourth-biggest population in the world – at more than 260mn – the government collects little tax from its citizens. Government revenue was 14% of GDP in 2016, lower than its peers, and a key obstacle to faster growth and credit-rating upgrades. Revenue was 80tn rupiah ($5.9bn) short of its target last year.
Indrawati, who pledged tax reforms after taking office in 2016, said the government has to strike a balance in chasing its revenue goals, and doesn’t want to increase pressure on companies that are already taking strain because of volatile commodity prices.
“If we look back to 2014, 2015 and 2016, the tax targets were too high and created doubts about the credibility of the state budget. The public also felt that we were breathing down their neck,” she said. “In the future, we will improve our tax collection process and coordination between agencies.”
Despite the lower tax take, the government also underspent on its budget, resulting in an estimated fiscal deficit of 2.6% of GDP compared with a previous forecast of 2.9%. The government is mandated to keep the shortfall under 3% of GDP.
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