Title_ Can Indonesia Reform its Tax System? Problems and Options

Author_ James Alm

Pages 71-99

Abstract_ The Indonesian tax system is plagued by a number of problems. Of most importance, the tax system generates an extraordinarily low level of revenues, due to several aspects of the tax system. There is evidence of significant amounts of tax evasion. The tax base has also been reduced by deliberate tax structure decisions, especially the choice of thresholds in the corporate income tax and in the value-added tax, along with the extensive system of fiscal incentives that are available in both taxes. These features of the tax system contribute to an overly complicated system, and they also illustrate the limitations of the tax administration. Indeed, the system has evolved over time in a piecemeal, ad hoc manner with little apparent thought given to the ways in which the pieces of the system need to fit together. This paper analyzes these problems , and it suggests possible options for tax reform.

Keywords_ Tax reform, Tax effort, Tax evasion