Indonesia’s flagship tax amnesty program is the first step of a wider tax reform by the government and will play a major role in improving the country’s ability to finance education, health and infrastructure. The ultimate goal is to reduce poverty and inequality, Finance Minister Sri Mulyani Indrawati said on Monday (17/10).
Sri made her remarks in front of over 2,000 Indonesian youths gathered for the 16th Supermentor event in Jakarta. The event is the brainchild of Dino Patti Djalal, the former deputy foreign minister and also the founder of the Foreign Policy Community of Indonesia. The country needs more tax revenue. The government can redistribute wealth from the rich to improve welfare for the poor.
Tax collection — targeted to reach Rp 1,539.2 trillion ($118 billion) in the 2016 revised state budget — contributes 86 percent of the government’s total revenue, yet Indonesia’s tax-to-GDP ratio remains at a low 11 percent. Compare that to Malaysia’s (15.6 percent), Singapore’s (13.85 percent), the Philippines’ (12.89 percent) and Thailand’s (15.45 percent).
Before Sri delivered her speech, Rodrigo Chaves, the World Bank’s country director for Indonesia, told the press that the government needs to invest in human capital — which includes education, health and early childhood development — and in infrastructure to generate more capital and increase productivity. Equal education and healthcare access, Chaves said, will help children from low-income families get well-paying jobs, ending the circle of poverty.
According to Indonesia’s Statistics Agency, 28 million people live in poverty in Indonesia, nearly 11 percent of the country’s 260 million population. Indonesia has earmarked 20 percent of its budget, or Rp 416.6 trillion, for education and five percent, or Rp 104.1 trillion, for health in 2016.