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Financial and Tax Compliance in Indonesia

Indonesia is Southeast Asia’s largest economy and the 7th largest economy in the world. According to a 2017 report by PwC, it is predicted that Indonesia will jump to 4th place by 2050.

Despite these promising forecasts, financial and tax compliance in Indonesia still remains an issue to be addressed. Data shows that the country collects approx. 12% of GDP in tax revenue and more than 40 million people are estimated to be failing to meet their tax obligations. In order to address this challenge and boost tax compliance, a variety of nudge interventions proposed by behavioural economics studies (having shown positive outcomes in other countries) are being trialled. Compared to other nations, the tax structure for both corporate companies and individuals in Indonesia is relatively low. However, financial and tax compliance in Indonesia still has to meet the government’s expectations.

It would be impossible to talk about tax evasion without mentioning the endemic corruption affecting the country as a whole. Voluntary compliance across the different levels of the Indonesian economy sector is rare and – in order for its tax compliance system to be aligned with other large global economies – Indonesia needs to face corruption and eradicate tax evasion.