Despite economic challenges throughout 2025, the government sees an opportunity to strengthen state revenue fundamentals through more measurable and sustainable strategies to support long-term growth.
In the 2025–2029 National Mid-Term Development Plan (RPJMN), the government set more realistic tax-to-GDP ratio targets without diluting its ambition to reinforce fiscal capacity. This year, the government aims for a ratio of 10.03 percent, in line with fiscal consolidation and economic recovery projections.
In recent years, Indonesia has managed to keep its tax ratio near the 10 percent mark, recording 10.38 percent in 2022, 10.31 percent in 2023, and 10.08 percent in 2024.
As of the third quarter of 2025, the ratio stood at 8.88 percent under the narrow definition and 9.82 percent under the broad definition, which includes regional tax revenue.
Although the 2025 target currently appears difficult to achieve, the government has reaffirmed its commitment to steadily improving the ratio in the coming years.
Finance Minister Purbaya Yudhi Sadewa has stressed the government's resolve to pursue long-term fiscal policies aimed at expanding fiscal space, with the ultimate objective of improving public welfare.
What the 2025 numbers reveal
Indonesia had collected about Rp2,113.3 trillion (US$1 = Rp16,773) in state revenue as of late October 2025, equal to 73.7 percent of this year's State Budget target. While performance was solid, revenue remained below levels seen two years earlier amid higher commodity prices.
Net tax revenue as of October 31 reached Rp1,459.03 trillion, down 3.9 percent year on year and equal to 70.2 percent of the target. Gross revenue grew 1.8 percent, indicating higher tax restitution rather than weaker collection.
Director General of Taxes Bimo Wijayanto reported a 36.4 percent surge in tax restitution as of October 2025, driven largely by corporate income tax and value-added tax (VAT) refunds.
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Growth before new levies
To support President Prabowo's tax-to-GDP agenda, Finance Minister Purbaya has opted for a growth-oriented approach. Rather than immediately expanding the tax base, the government is prioritizing economic growth to strengthen taxpayers' capacity organically.
He has assured the public that the government will refrain from introducing new levies until economic growth reaches 6 percent. Since the post-pandemic recovery, Indonesia’s economic growth has ranged between 5.03 and 5.31 percent.
This approach has drawn support from Fajry Akbar, a tax observer at the Center for Indonesia Taxation Analysis (CITA), who said stimulating growth to reinforce the existing tax base is the most appropriate strategy amid global economic uncertainty.
Executive Director of the Pratama-Kreston Tax Research Institute, Prianto Budi Saptono, suggested that the Directorate General of Taxes step up asset tracing for taxpayers with finalized arrears cases to ensure overdue taxes are paid.
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Structural reforms beyond growth
Economists caution that growth alone may not be sufficient to sustainably raise Indonesia's tax-to-GDP ratio without deeper structural reforms.
Center of Reform on Economics (CORE) economist Yusuf Rendy Manilet urged the government to accelerate economic formalization by bringing informal activities into the tax net.
He stressed that most informal economic activities in Indonesia remain beyond the tax base and will continue to do so without formalization.
To address this, Manilet said the government should simplify licensing procedures, promote transaction digitalization, and encourage micro, small and medium enterprises to formalize through targeted incentives.
Beyond broadening the tax base, he also advocated deeper industrialization and tax extensification. Industrialization, he said, would structurally lift the tax-to-GDP ratio by increasing manufacturing contributions through corporate income tax and VAT.
Without expanding industrial activity beyond raw commodity exports and incentive-heavy projects, the sector's contribution to tax revenue will remain limited, he added, noting that productivity gains and greater investment are essential.
On tax extensification, Manilet described it as a way to generate new revenue sources without undermining growth, saying well-targeted measures could deliver faster gains in the tax-to-GDP ratio.
The Ministry of Finance has outlined these approaches in its 2025–2029 Strategic Plan, which includes integrating taxpayer databases across ministries and agencies and tapping new revenue sources.
Central to the reforms is the full rollout of the Core Tax Administration System in 2025, a digital overhaul automating processes, including linking national ID numbers with tax IDs, to reduce data silos and improve voluntary compliance through a user-friendly taxpayer portal.
Economists project that while Indonesia faces increasing global and domestic challenges, prudent and well-calibrated policies will be critical to managing risks and fulfilling the government's commitment to strengthening fiscal capacity for national development.
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Translator: Imamatul Silfia, Tegar Nurfitra
Editor: Anton Santoso
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