Indonesia Needs More Tax Reforms While Improving Public Spending, Governance: OECD

Jakarta Globe, Ratri M. Siniwi, October 24, 2016

The Organization for Economic Cooperation and Development (OECD) says
 Indonesia had only 27 million registered taxpayers out of a population of 260
million in 2014, with only 900,000 of them having paid what they owed the
state. (Antara Photo/Wahyu Putro A.)

Jakarta. Despite strong growth in Indonesia's gross domestic product, the Organization for Economic Cooperation and Development, or OECD, says more tax reforms are needed.

In a report titled "2016 Economic Survey of Indonesia," the organization indicates that one of the country's main challenges is a narrow tax base, with only 10.7 percent of gross domestic product having been taxed in 2015, compared to 11.4 percent in 2012. It also says tax evasion is prevalent.

"Only 27 million taxpayers were registered in 2014, in a population of 260 million, and only 900,000 of those paid what they owed," the OECD said in the report.

The report also highlights the lack of efficiency in public spending and recommends that Indonesia scraps all energy subsidies, which account for 7 percent of public expenditure.

The OECD claims that this would be a necessary move for Indonesia to go green, meet renewable energy targets and boost funding for public priorities, such as education, health care and infrastructure.

The organization recommends the implementation of improved controls and performance-based budgeting if Indonesia wants to meet its target of 20 percent government spending on education and 5 percent on health.

Corruption appears to be the main factor that discourages businesses in Indonesia and hampers economic development.

According to OECD, the Corruption Eradication Commission (KPK), which plays a vital role in combating the challenge, should be provided with more resources and authority.

OECD secretary general Angel Gurria said an improvement in living standards can be seen in Indonesia, thanks to strong economic growth and social progress.

"Many challenges remain, but the government is moving in the right direction by reducing obstacles to doing business, improving the investment environment, and cutting subsidies," Gurria said in a statement on Monday (24/10).

Along with the launch of its economic survey, the OECD also introduced the "2016 Open Government Review of Indonesia," which recommends the establishment of a continuous budget for improving the quality and volume of data for public access.