Is Coretax the Culprit in Indonesia’s Tax Revenue Decline?

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Indonesia’s tax revenue decline has raised concerns among policy makers and economists. The Ministry of Finance reported that by the end of February 2025, tax revenue reached only USD 12 billion, a 30% drop compared to the same period in the previous year. This decline resulted in a 21% fall in state revenue, leaving only USD 20.2 billion or 10.5% of the annual target of USD 190 billion. Consequently, the 2025 State Budget recorded a deficit of USD 2 billion, or 0.13% of the Gross Domestic Product (GDP).

How Coretax Contributed to Indonesia’s Tax Revenue Decline

The implementation of the Coretax system on January 1, 2025, has been identified as a significant factor in the tax revenue decline. According to the Ministry of Finance, technical glitches in the system prevented many taxpayers from reporting their transactions, which delayed payments. This resulted in a potential loss of USD 4.1 billion in January alone, leading to a 41.8% drop in collections for that month.

Director of the Center of Economic and Law Studies (Celios), Nailul Huda, commented, as reported by Kompas, “This is not merely a technical issue but a fundamental problem that threatens the country’s fiscal stability. When the tax system fails to function optimally, the tax revenue base collapses, and the government loses fiscal space to run priority programs.”

Other Factors Behind Indonesia’s Tax Revenue Decline

  • Falling Global Commodity Prices: The drop in coal prices by 11.8%, Brent crude oil by 5.2%, and nickel by 5.9% directly impacted tax revenue from related industries.
  • Average Effective Rate Policy Implementation: The introduction of this policy for income tax (PPh) Article 21 resulted in USD 1.1 billion in excess tax payments, which were refunded in early 2025, lowering perceived revenue.
  • VAT Payment Relaxation: Allowing domestic Value-Added Tax (VAT) payments due in January to be postponed until March 10 delayed expected revenue.
  • Economic Slowdown: Global economic uncertainty further reduced business activity and tax contributions.

Government’s Response and Future Outlook

The Ministry of Finance insists that the tax revenue decline is part of a normal trend. Minister Sri Mulyani Indrawati explained, “Tax revenue follows a specific monthly trend. It rises significantly in December due to the Christmas and New Year effect, then declines in January and February. This is not an anomaly.” She also reassured that the current deficit remains within safe limits, as the 2025 state revenue was designed with a deficit of USD 40.4 billion, or 2.53% of GDP.

Moreover, the government is taking steps to address the Coretax system’s technical issues. Enhancing user support, upgrading the platform’s infrastructure, and providing more training for taxpayers are among the strategies being implemented to prevent future disruptions.

Addressing the Tax Revenue Challenge

While Coretax’s technical issues contributed to Indonesia’s tax revenue decline, other factors like falling commodity prices, policy shifts, and global economic conditions also played crucial roles. Addressing these challenges will require improvements to the Coretax system, strategic policy adjustments, and continuous monitoring to stabilize future revenue collection. The government’s proactive measures aim to restore confidence and ensure better tax compliance moving forward.

Source: kompas.com

Image: Canva Images

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