Finance Minister Sri Mulyani Indrawati (left) and President Joko Widodo (Image credit: Presidential Office)

JAKARTA (TheInsiderStories)- The Indonesian government’s State Budget deficit was equal to 2.6 per cent of gross domestic product in 2017, lower than the government’s target of 2.9 percent of GDP.

Finance Minister Sri Mulyani said Tuesday (02/01), the government spending reached more than Rp 2000 trillion, or 94 per cent of its target, which was 7.4 per cent higher than in 2016.

The spending included the development of 794 kilometers of roads, 9,072 meters of bridges and 11 airports across the country, according to Sri Mulyani.

The government collected Rp1,339 trillion (approximately US$178 billion) in tax payments last year, or 91 per cent of its target. That was up 4.3 per cent from a year earlier.

“The improvement story continued in 2017,” she said.

She said the economy likely grew by 5.05 per cent last year, slightly lower than the government’s target of 5.2 per cent.

The government of Indonesia targets to collect Rp1,618.1 trillion (approx. US$120 billion) worth of tax revenues in the 2018 State Budget.

However, this would imply a 20 per cent (y/y) increase from the estimated Rp1,339 trillion that the Southeast Asia’s largest economy will collect in 2017.

This seems a much too ambitious growth pace, especially considering the average annual tax revenue growth pace in the 2014-2017 is (an estimated) 5.6 percent.

Indeed, there is room for more-than-average tax revenue growth in 2018 because Indonesia’s Tax Office can rely on a broader taxpayer base, supported by the government’s tax amnesty program launched last year, through which nearly US$360 billion of assets were reported by taxpayers, and Rp107 trillion (approx. US$8 billion) were added to the country’s 2016 tax revenues.

However, this will not be enough to trigger the required 20 per cent growth in tax revenue to achieve the 2018 target.

There are also some risks that may occur in 2018. US President Donald Trump wants to make a more attractive tax regime in the USA, which could encourage direct investment in the USA. As a result other countries may also decide to make their tax regimes more attractive. This could make investors decide to invest in other countries, other than Indonesia.

Secondly, Indonesia is to enter the political years of 2018 (regional elections) and 2019 (legislative and presidential elections). This can shift the focus from the tax reform agenda to political matters.

Written by Elisa Valenta, email: elisa.valenta@theinsiderstories.com

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