Tax Reform and Noncompliance in Indonesia

Iswahyudi, Heru

doi:10.22146/jieb.18153

Cited by 6 publications

(6 citation statements)

References 18 publications

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“…The financial crisis of 1998 that continued into the new millennium had a strong adverse effect on tax revenues. This was due to the economy shrinking but also an effect of the more difficult conditions for tax collection given the initial social tensions (Iswahyudi, 2017). As noted above, the end of the Suharto era was a watershed in Indonesia, which heralded a change in the form of both democratisation and decentralisation.…”

Section: Securing Revenue and Tax Reformsmentioning

confidence: 99%

Resilience to economic shrinking in an emerging economy: the role of social capabilities in Indonesia, 1950–2015

Andersson

Axelsson

Palacio

2021

Journal of Institutional Economics

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Economic history has recently emphasised the impact of economic shrinking on long-term economic growth, but economic theories do not provide explanations for how and why some countries avoid economic shrinking. In this case study of institutional change in post-independence Indonesia, we examine how the country managed to reduce the frequency of shrinking during the authoritarian regime and beyond. We argue that the state's autonomy, measured by macroeconomic policymaking, and accountability, measured by food security, were two key social capabilities that enabled Indonesia to reduce the frequency of economic shrinking. During this period, the ‘doorstep conditions’ for the transition into a democracy and stable economic growth emerged. More specifically, Indonesia managed to diversify its revenue base and make public resources more available for the broader common good. Loosening the connection between macroeconomic policymaking and elites opened up greater opportunities for the emergence of private enterprises. However, to date, the country is still far from a full-fledged open access society.

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Section: Securing Revenue and Tax Reformsmentioning

confidence: 99%

Resilience to economic shrinking in an emerging economy: the role of social capabilities in Indonesia, 1950–2015

Andersson

Axelsson

Palacio

2021

Journal of Institutional Economics

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“…In recent years, Indonesia's capacity to collect taxes has been sub-optimal. While its neighboring countries have been able to collect taxes at levels more than 15 percent of GDP, Indonesia struggles to collect just 14 percent of its GDP (Iswahyudi, 2017). This sub-par performance has been argued to be the result of defects in the tax laws and regulations (Alm, 2019) and limitations in the administrative qualities and capabilities of the tax authority (Iswahyudi, 2020a).…”

Section: A State Institutions and Tax Capacity In Indonesiamentioning

confidence: 99%

“Getting to Denmark" from Indonesia: Starting from State Institutions or Tax Capacity?

Iswahyudi¹

2021

JIEB

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Introduction/Main Objectives: This paper is aimed at answering the following research questions: Where should Indonesia’s journey toward a prosperous society start from? Should state institutions be improved first to increase the tax collection necessary to finance this journey? Or should the tax capacity be improved first to help improve the institutions? Background Problems: Maintaining good quality state institutions requires fiscal support and, vice versa, maintaining fiscal support through tax revenue requires the existence of good quality state institutions. This paper empirically examines which of these two aspects needs to be improved first to achieve a better society for Indonesians. Novelty: To the best of the author’s knowledge this paper may be the first that tries to empirically explore the causal relationships between the quality of Indonesia’s state institutions and its tax capacity. Research Methods: Answers to the research questions were approached by employing a vector error-correction model of governance indicators and tax revenue data for Indonesia, covering the period from 2002 to 2017. Finding / Results: It has been found that, for Indonesia, the quality of the state institutions and the tax capacity did not have a causal relationship in any direction. Conclusion: Indonesia seems to be caught in a dilemma: On one side, choosing the strategy of improving the quality of the institutions first may not be sustainable because it is unlikely to lead to improvements in the tax capacity, thus the prospects for sustaining good-quality institutions may be uncertain due to the possible lack of fiscal support. On the other hand, improving the tax capacity first does not seem to be a reliable strategy either because it may not result in better quality state institutions, hence revenue mobilization efforts might not be effective due to the incomplete support provided by the poor-quality institutions

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“…Both data are measured at constant 2010 prices. Data on VAT noncompliance are from Iswahyudi (2017) who defined the VAT gap due to noncompliance as the difference between the actual VAT revenue collected by the government and the VAT total theoretical liability. Iswahyudi (2017) The VAT gap may serve as a benchmark for gauging the level noncompliance to the tax laws in general.…”

Section: Tax Noncompliance and Capitalmentioning

confidence: 99%

“…Data on VAT noncompliance are from Iswahyudi (2017) who defined the VAT gap due to noncompliance as the difference between the actual VAT revenue collected by the government and the VAT total theoretical liability. Iswahyudi (2017) The VAT gap may serve as a benchmark for gauging the level noncompliance to the tax laws in general. This is because noncompliance to VAT tends to be followed by noncompliance to other taxes, particularly the income tax.…”

Section: Tax Noncompliance and Capitalmentioning

confidence: 99%

“…Theoretically, the invoiceand-credit design of VAT would make noncompliance to this tax instrument easier to detect than other types of tax instruments. Hence, Iswahyudi (2017) argued that "…when taxpayers failed to report or underreport their VAT liabilities, it is likely that they would also fail to report or underreport their income tax liabilities in order to avoid detection. "…”

Section: Tax Noncompliance and Capitalmentioning

confidence: 99%

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Economic Consequences of Tax Noncompliance

Iswahyudi¹

2018

JBPPK

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This paper aims to examine how tax noncompliance may affect capital accumulation and economic growth in Indonesia within the framework of endogenous growth theory. It is found that the economic effect of tax noncompliance may depend more on how the available capital is utilized, rather than its impact on capital accumulation per se. Empirical results also show that private investment has higher productivity than public investment. Further, it seems that the role of private investment in growth process is much larger and more important than public investment and these results are robust across several specifications. The central thesis of this paper is that expansionary fiscal policies may need to carefully consider the productivity constraints that might be faced by public sector investments.

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Tax Reform and Noncompliance in Indonesia

Abstract: The purpose of this paper is to examine the impact of

Cited by 6 publications

References 18 publications

Resilience to economic shrinking in an emerging economy: the role of social capabilities in Indonesia, 1950–2015

Resilience to economic shrinking in an emerging economy: the role of social capabilities in Indonesia, 1950–2015

“Getting to Denmark" from Indonesia: Starting from State Institutions or Tax Capacity?

Economic Consequences of Tax Noncompliance

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