How could Indonesia's low tax-to-GDP ratio affect Bank Indonesia?
Low state revenue and weak tax collection may challenge Bank Indonesia's stability goals. Indonesia's state revenue, currently at 12 percent of GDP, is significantly lower than that of Cambodia (18 percent) and Vietnam (23 percent). This low ratio is attributed to weak tax collection and an estimated 30 to 40 percent of economic activity remaining unrecorded. The resulting fiscal gap of Rp 1.5 quadrillion annually places pressure on the nation's overall economic stability, which is a key factor Bank Indonesia must monitor when managing monetary policy and the financial system.
- Effect
- Mild negative
- How direct
- Brind's reasoning
- When
- Over the long term
- The story
- Gone quiet
How it reaches Bank Indonesia
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Hashim Djojohadikusumo, chairman of the Indonesian Chamber of Commerce and Industry, stated that Indonesia's state revenue amounted to 12 percent of GDP. He noted that this figure is lower than Cambodia's 18 percent and Vietnam's 23 percent. Hashim attributed the low revenue to weak tax collection, arguing that Indonesia could generate an additional US$82.6 billion annually if it matched Cambodia's ratio.
The full event1independent outlet -
The low revenue collection, which Hashim Djojohadikusumo attributed partly to cash-based transactions, creates a substantial fiscal gap of Rp 1.5 quadrillion annually. This weakness in state finances contributes to the overall macroeconomic environment that Bank Indonesia is tasked with stabilizing.
No report states this step directly. Brind drew it from the reporting on each side of it, so treat it as an informed guess.
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central bank of the Republic of Indonesia
Everything about Bank Indonesia
Tap any step to see the evidence behind it.
The facts so far
As reported. Each one links to where it comes from.
- Indonesia's state revenue amounted to just 12 percent of recorded gross domestic product (GDP).thejakartapost.com
- Cambodia has a tax-to-GDP ratio of 18 percent and Vietnam has 23 percent.thejakartapost.com
- Indonesia could generate an additional Rp 1.5 quadrillion annually if it matched Cambodia's tax-to-GDP ratio.thejakartapost.com
- Estimates from the World Bank cited 30 to 40 percent of economic activity in Indonesia remained unrecorded.thejakartapost.com
Why it matters
The fiscal health of Indonesia is critical to its long-term economic trajectory. A persistent gap between potential revenue and actual collection creates structural vulnerabilities that can complicate monetary policy and increase risks within the financial system, which Bank Indonesia oversees.
This issue is not unique to Indonesia. The reports highlight that other Southeast Asian nations, such as Cambodia and Vietnam, have achieved higher tax-to-GDP ratios, demonstrating that the gap is a matter of collection efficiency and economic formalization rather than a lack of national potential.
What we don't know yet
- How effective will the government's expansion of electronic tax collection using artificial intelligence be in closing the revenue gap?
- What specific policy adjustments might Bank Indonesia make if the fiscal gap persists over the next few years?
What would change this answer
Who else could feel it
Other possible ripples from the same event.
Reporting
- thejakartapost.comOct 30
Keep going
Brind's analysis is written by AI from the reporting linked above and can be wrong. This explainer is a possibility worth considering, not a forecast: steps marked as Brind's reasoning are not stated in the reporting. It is not investment advice; do your own research.