World Economy

Indonesia bets on the taxman

Dimas Ardian | Bloomberg | Getty Images

Indonesia has suffered tax collection shortfalls for years, but armed with fresh data, the country's taxman is banking on a huge jump in revenue this year, although some analysts aren't as certain.

"The difference between this year's tax collections and previous ones is on the data," Finance Minister Bambang Brodjonegoro said at the Credit Suisse Asian Investor Conference last week. "Now we have not only massive data -- and more accurate -- we also have a better ID system and as a result now we can identify or we can do the profiling of each individual taxpayer, both companies and individuals."

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Many Indonesians use only one name, creating potential headaches for identification. Since 2011, Indonesia has been implementing a national biometric identification card program, replacing all previous identity cards with just one for all programs, including voter registration, passports and taxes. It's a program the government pursued in part to prevent drug dealers from creating multiple false identities for opening bank accounts and the fingerprint data collected was used to help identify victims of the AirAsia flight QZ8501 crash.

The country is aiming for a 30 percent increase in its tax collections this year, an ambitious goal, but Brodjonegoro pledged "no new taxes," just a heavy emphasis on compliance, armed with the new data. Last year, personal income tax only contributed around 5 trillion rupiah ($382 million) of the 900 trillion rupiah in tax revenue, Brodjonegoro said, noting that out of a population of 255 million, only about 900,000 taxpayers actually paid income tax.


Another source of data on who should be paying taxes may come from value-added tax (VAT) refunds provided to tourists as they leave the country.

"Sometimes we are confused why the refund is so high when the inflow of the tax is not that high," Brodjonegoro noted.

The VAT could provide other data as well, such as whether individuals are making large purchases that would seem unaffordable on their declared income, noted Euben Paracuelles, a Southeast Asia economist at Nomura.

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The current administration hopes to offer an amnesty period, allowing delinquent taxpayers to declare and pay their back taxes for the past five years without added penalties, a program it offered with some success in 2008, even without the fresh data.

Too ambitious?

But analysts are skeptical.

"You need to have a revision of the tax law to get [an amnesty period] implemented. But it's not very clear whether the timing can be done within this budget year, especially when the parliament is relatively opposition dominated," noted Paracuelles.

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He believes the 30 percent collection growth target is "way too ambitious" and he's not alone.

Goldman Sachs also views the target as optimistic, expecting the actual increase will be around 15 percent.

"This potentially puts pressure on fiscal expenditure, which may cut or delay capital spending by as much as 20-25 percent of the estimated amount in the 2015 budget," Goldman said in a note dated Sunday. "The bottom line is that we may see downside risk to growth."

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter