Jakarta, The PRAKARSA — The PRAKARSA Together with Prospera, a Focus Group Discussion (FGD) entitled "Reforming Taxes to Invest in Indonesia's Future" was held at the Mercure Sabang Hotel, Jakarta, on Tuesday (August 5, 8). Representatives from civil society organizations, academics, and the private sector attended the event, including PWYP, PUSKAHA, the University of Indonesia (UI) Tax Center, ASPPUK, Transparency International Indonesia (TII), and Indonesia for Global Justice (IGJ). The FGD aimed to map the challenges of the national tax system and formulate recommendations for tax reform in Indonesia based on the principles of fairness, transparency, and public participation.
This discussion revealed several issues, including the low tax-to-GDP ratio of only 10-11%. One key factor is the low tax base, with 60% of the economy dominated by the informal sector, which is difficult for the tax system to access. The dependence of state revenues on the commodity cycle further exacerbates this situation, making tax revenues unstable and vulnerable to fluctuations in commodity prices on the global market.
Ah Maftuchan, Executive Director of The PRAKARSA, who moderated the discussion, revealed that this situation is exacerbated by a public trust deficit in the tax system. People are reluctant to pay taxes because policies are often open to multiple interpretations and lack legal certainty, creating opportunities for abuse by both taxpayers and tax authorities. "Low transparency in state budget allocation further erodes public trust, as people don't see the direct benefits of their taxes," he said.
On the other hand, the current tax system is considered unfair because it burdens lower-middle class taxpayers more than high-income taxpayers. This less-than-progressive system widens social inequality. "Another challenge comes from the administrative side, where the digitalization of the tax system (CORETAX) has not been optimal, tax compliance costs for MSMEs remain high, and limited tax apparatus capacity makes it difficult to monitor potential taxpayers, especially those from the high-income group," Maftuchan added.
This discussion yielded several recommendations for building a fairer and more effective Indonesian tax system. The top priority is restoring public trust through transparent tax allocation, so that the public can see the concrete benefits of their contributions. Strong coordination between ministries is also needed. (co-governance) to ensure consistent fiscal policies, as well as the development of an inclusive public narrative to increase public participation in the tax system.
On the regulatory side, the results of this discussion emphasized the importance of legal certainty through simplification of tax regulations, which have often been open to multiple interpretations and prone to abuse. A comprehensive evaluation of tax incentives is necessary to ensure they are targeted, while tax dispute resolution mechanisms must be fairer and less burdensome for compliant taxpayers. Furthermore, the tax system must be designed progressively by broadening the tax base, implementing fairer rates based on ability to pay, and optimizing data collection in the informal sector, which has traditionally been difficult to reach.
To support policy implementation, strengthening tax administration is crucial through accelerating the digitalization of services and increasing the capacity of tax officials. MSMEs, as the backbone of the economy, require special assistance to fulfill their tax obligations without being burdened by high compliance costs. Indonesia needs to actively participate in global synergies, including through the UN Tax Convention, to address cross-border tax avoidance practices and create a fairer international tax system.
Furthermore, recommendations from this discussion emphasized the importance of tax literacy, educational approaches, and zakat integration as alternatives. Furthermore, there is a need to improve integrity in tax law enforcement and optimize non-tax state revenue (PNBP).
The FGD results will form the basis for policy advocacy and further dialogue with the government. PRAKARSA and Prospera is committed to promoting reforms that prioritize the principle of tax fairness, particularly in the drafting of a more responsive Tax Bill.