Topic 1: Enhancing Revenue Potential for the SDGs

Topic 1: Enhancing Revenue Potential for the SDGs Presented by: Astera Primanto Bhakti Assistant to the Minister of Finance for State Revenue Policy on the event of: Inaugural Meeting of the Eminent Expert Group in Tax Policy and Public Expenditure Management for Sustainable Development Bangkok, 5 7 December 2016 1 1

The Taxation Revenue Profiles (in trillions rupiah) YEAR 2009 2010 2011 2012 2013 2014 Tax Revenue 619,9 712,2 873,9 980,5 1077,3 1146,9 I. Domestic Tax Revenue 601,3 683,3 819,8 930,9 1029,9 1103,2 1. Income Tax 317,6 357 431,1 465,1 506,4 546,2 Oil and Gas Income a. Tax 50 58,9 73,1 83,5 88,7 87,4 b. Non Oil and Gas Income Tax i. Personal Income Tax ii. Corporate Income 267,5 298,2 358 381,6 417,7 458,7 55,4 58,3 70 83,4 94,5 110,4 120,3 132,1 155,5 152,9 155,1 149,3 iii. Other Income Tax 91,8 107,8 132,5 145,3 168,1 199,1 2. Value Added Tax 193,1 219,5 277,8 337,6 384,7 409,2 a. VAT 184,2 207,1 264,4 318,7 365,9 393,6 Sales Tax on Luxury b. Goods 8,9 12,4 13,4 18,9 18,8 15,6 Land and Building Tax 3. and Transfer Duty 30,7 36,6 29,9 29 25,3 23,5 4. Excises 56,7 66,2 77 95 108,5 118,1 5. Other Taxes 3,1 4 3,9 4,2 4,9 6,3 II. International Trade Tax 18,7 28,9 54,1 49,7 47,5 43,6 1. Import Duties 18,1 20 25,3 28,4 31,6 32,3 2. Export Duties 0,6 8,9 28,9 21,2 15,8 11,3 Source : Ministry of Finance (in percentage to total tax revenue) YEAR 2009 2010 2011 2012 2013 2014 I. Domestic Tax Revenue 97,00 95,94 93,81 94,94 95,60 96,19 1. Income Tax 51,23 50,13 49,33 47,43 47,01 47,62 a. Oil and Gas Income 8,07 8,27 8,36 8,52 8,23 7,62 b. Non Oil and Gas 43,15 41,87 40,97 38,92 38,77 39,99 i. Personal Income Tax 8,94 8,19 8,01 8,51 8,77 9,63 ii. Corporate Income 19,41 18,55 17,79 15,59 14,40 13,02 iii. Other Income Tax 14,81 15,14 15,16 14,82 15,60 17,36 2. Value Added Tax 31,15 30,82 31,79 34,43 35,71 35,68 a. VAT 29,71 29,08 30,26 32,50 33,96 34,32 b. Sales Tax on Luxury 1,44 1,74 1,53 1,93 1,75 1,36 3. Land and Building Tax 4,95 5,14 3,42 2,96 2,35 2,05 4. Excises 9,15 9,30 8,81 9,69 10,07 10,30 5. Other Taxes 0,50 0,56 0,45 0,43 0,45 0,55 II. International Trade Tax 3,02 4,06 6,19 5,07 4,41 3,80 1. Import Duties 2,92 2,81 2,90 2,90 2,93 2,82 2. Export Duties 0,10 1,25 3,31 2,16 1,47 0,99 Income Tax (49%) and Value Added Tax (34%) are among the main sources of state tax revenue Personal income tax contribution to state tax revenue is relatively low (+/ 9%) 2 2

Total Taxation and Non Taxation Revenue Performance in term of nominal is increasing, but buoyancy and Tax Ratio are decreasing... Total Taxation and Non Tax Revenue (Rp Trillion) Tax Ratio & Buoyancy (%) Tax Revenue Non Tax Revenue 3 3

Tax Ratio (central) moving at the level of 10 11% during 2012 2015, while the Tax Ratio (broad sense) moving at the level of 12 15% (central) (central + natural resources) (central + natural resources + regions) The low tax ratio indicates the presence of potential tax revenue that can be explored. 4 4 4 4

Tax Buoyancy (total) also tend to decrease since 2011 2.5 Tax Buoyancy 2011 2015 2 1.5 1 0.5 Total Pajak Tax + + Oil PPh and Migas Gas Income Tax PPh Non Non Oil and Migas Gas Income Tax PPN Value Added Tax 0 2011 2012 2013 2014 2015 Total 1.48 1.22 0.94 0.59 0.88 Pajak Tax + Oil + PPh and Migas Gas Income Tax 1.29 1.25 0.97 0.63 0.83 PPh Non Non Oil and Migas Gas Income Tax 1.42 0.66 0.9 0.9 2.22 PPN Value Added Tax 1.45 2.15 1.32 0.58 0.38 5 5 5

Income Tax, Value Added Tax, and GDP Tax (in Billion Rupiah) URAIAN (dalam Triliun Rupiah) Total Tax Revenue Tax + Oil and Gas Income Tax Non Oil and Gas Income Tax Value Added Tax Total Penerimaan Perpajakan 2011 2012 2013 2014 2015 LKPP LKPP LKPP LKPP Real 873,9 980,5 1.077,3 1.146,9 1.240,4 Pajak + PPh migas 742,7 835,8 921,4 985,1 1.060,8 PPh (Nonmigas) 358,0 381,6 417,7 458,7 552,6 PPN 277,8 337,6 384,7 409,2 423,7 GDP Nominal PDB NOMINAL 7.831,7 8.615,7 9.524,7 10.565,8 11.540,8 GROWTH 2011 2012 2013 2014 2015 Total Penerimaan Tax Revenue Perpajakan 20,82 12,20 9,87 6,46 8,16 Pajak Tax + Oil + PPh and Gas migas Income Tax 18,2 12,5 10,2 6,9 7,7 PPh Non (Nonmigas) Oil and Gas Income Tax 20,1 6,6 9,5 9,8 20,5 PPN 20,5 21,5 14,0 6,4 3,5 Value Added Tax GDP Nominal Economic Growth (%) PDB NOMINAL 14,10 10,01 10,55 10,93 9,23 Pertumbuhan ekonomi % 6,5 6,2 5,7 5,0 4,8 6 6 6

ASEAN Tax Ratio Tax Ratio 20.0 18.0 16.0 14.0 12.0 10.0 14.9 13.3 12.9 17.3 16.4 15.6 14.8 15.5 14.8 13.7 13.85 13.30 12.97 12.89 12.15 12.38 11.91 11.16 11.10 11.38 11.30 10.54 10.00 10.15 16.03 14.6 10.90 Thailand Malaysia Lao PDR Singapore Philippines Indonesia 8.0 Cambodia Brunei Darussalam 6.0 Vietnam 4.0 Myanmar Timor Leste 2.0 0.0 2010 2011 2012 2013 2014 7 7 7

Indonesian Government Revenue Policy 2012 2016 2012 2013 2014 2015 2016 Tax administration reform Tax policy reform Supervision and potential exploration reform Exploration tax potential Improve supervision and service in the field of customs and excise Extra effort of tax revenues of nonoil and gas Optimization of revenue from oil and gas Optimization of the government on the profits of State Owned Enterprises Revenue optimization without disturbing the development of investment and business Tax administration reforms, supervision and exploration, improvement of tax policy Import Duty Borne by the Government for specific sectors Tax Amnesty Extra effort of tax revenue, customs and excise Fiscal Incentives : Tax Allowance, Tax Holiday Value added Tax Exemption for national strategic industry sectors 8 8 8

Tax Revenue Vs Investment Tax is a combination of the two functions that are actually difficult to do, which is reinforce state revenue, but also encourage the investment climate to be competitive. Indonesian Tax Policy 2017 Optimize tax revenue potential Maintaining purchasing power Improve investment climate Reduction in state revenue Improvement of investment climate Tax Amnesty Increase tax base and tax compliance Extensification Intensification Improve tax regulation and excise Tax Incentives improve investment climate, industrial competitiveness, encourage downstream domestic industry Cost Recovery for upstream oil and gas projects International taxation transparency and exchange of information, investment growth, increase trade and protection of domestic industries 9 9 9

Indonesia Tax Reform 1,000.00 Indonesian Tax Ratio, Tax Revenue and GDP (USD) 100,000.00 900.00 800.00 Tax Ratio (%) Tax Revenue (in million USD) GDP (in billion USD) 90,000.00 80,000.00 700.00 600.00 10.43% 9.94% 10.84% 9.76% 9.73% 70,000.00 60,000.00 500.00 400.00 5.59% 6.00% 6.76% 6.78% 50,000.00 40,000.00 300.00 30,000.00 200.00 2.51% 20,000.00 100.00 10,000.00 1980 1983 1985 1990 1994 2000 2002 2008 2009 2012 2014 2015 Official Assesment VAT 10% Axis Title Sunset Policy Land & Building Modernization Tax Line to Function in Self Assesment 1. Income Tax 15% 35% (Individual & Corporate) 2. Land & Building Tax Amendment Income Tax Law No 17 Individual 5% 35% Corporate 10% 30% The establishment of Large Tax Office (LTO) Amendment Office Income Tax Law Individual 5% 30% Corporate 28 % (2009) & 25 % (2010) The General Tax Provisions and Procedures Law Pratama & Madya Tax Project for Indonesian Tax Administration Reform (PINTAR) 10 10 10

Indonesia Tax Reform Policies: Changes from Official to Self Assesment Policies: Tax Law Amendment Policies: Tax Reform Batch I Policies: Tax Reform Batch II 1984 1991 2000 2002 2008 2009 2014 VAT Income Tax Land Rule (Tariff) The General Tax Provisions and Procedures Law Income Tax Law VAT Law Tax on Land and Buildings Law The General Tax Provisions and Procedures Law Income Tax Law Sunset Policy Administration Tax Reform Intensification & Extensification ICT Enhancement Internal Control System Improvement Integrated and Advanced Human Resources Management System Development Source: DGT Strategic Plan 2012 2017 11 11 11

Indonesia Tax Reform 1983 DGT has made changes to the tax administration system from official assessment system to selfassessment system 1994 Building the basic principles of taxation Simplifying the tax rules Encourage economic development in remote areas Increase capital investment from abroad to increase employment opportunities Expanding the tax base 2002 DGT continued Tax Reform Batch I Reform of the administration (modernization of tax administration) The reform of the rules (Amendment of Taxation Law) Intensification and extensification 2009 Tax Reform Batch II was launched with a focus on improving the system and communications and Technology Information(ICT), the internal control system, and HR management. Improvement of the system aims to improve tax compliance 2012 Project for Indonesian Tax Administration Reform (PINTAR) is a program improvement of taxation business processes, which was based on the latest information technology 2016 Tax Amnesty With the detail below 12 12 12

Indonesian Tax Amnesty is one of the most successful in the world Highlighting a huge potential for expanding Indonesia tax base Tax Amnesty Revenue Realization, In US$ (Based On Tax Declaration Letter) 0.19 Bn 6.6Bn INDIV. NON MSME INDIV. MSME 0.71 Bn 5.71 Bn CORP. NON MSME CORP. MSME Realization of Asset Declaration from Tax Amnesty, In US$ 71.5 2 Bn 10.3 3 Bn 268.4Bn 186. 52 Bn ONSHORE DECLARATION OFFSHORE DECLARATION REPATRIATION Tax Amnesty Revenue Realization, In US$ (Based On Tax Payment Slip) 0.03 Bn 0.23 Bn 7.4Bn 7.14 Bn REDEMPTION MONEY(TPS) PRELIMINARY EVIDENCE PAYMENT TAX ARREARS PAYMENT Declared Assets % of GDP, Source: Deutsche Bank calculation Penalty as % of GDP, Source: Deutsche Bank calculation 25% 23% 0.80% 0.76% 20% 0.70% 0.62% 0.60% 15% 0.50% 0.40% 0.35% 10% 8% 0.30% 0.24% 5% 4% 0.20% 0.12% 2% 2% 0.10% 0.04% 0% 0% 0.00% Australia India Spain Italy Chile Indonesia Revenue From Tax Amnesty Austalia Spain Italy India Chile Indonesia Source: DG Tax 13 13 13

Thank You 14 14 14