JAKARTA - The Asian Development Bank (ADB) has approved a USD 500 million policy-based loan to strengthen the process of modernizing Indonesia's tax system.
This program aims to increase the efficiency of tax collection, improve equality, and strengthen fiscal resilience, in order to fund very important public services and long-term development targets.
This loan is part of the first subgram of three subgrams within the framework of the ADB Domestic Resource Mobilization (DRM) Program for Indonesia.
Director of ADB for Indonesia Jiro Tominaga said this initiative would help Indonesia strengthen its tax policy framework, increase compliance, and reduce tax evasion.
"This program is a very meaningful moment in supporting Indonesia's fiscal sustainability agenda," he said in his statement, Thursday, August 14.
He added that by modernizing tax administration through digitization and increasing international tax cooperation, Indonesia will have a better capacity to finance development priorities while maintaining macroeconomic stability.
Jiro said ADB support would help integrate reforms in line with the National Medium-Term Development Plan, and would increase revenue through three main reform fields: increase tax administration efficiency, increase international tax cooperation, and advance tax policies that support sustainable development.
In addition, he conveyed that ADB estimates that this first subgram will increase the tax ratio to Indonesia's GDP to 1.28 percentage points by 2030, thus creating fiscal space for growth and investment related to welfare.
"These various reforms will also help accelerate Indonesia's progress towards the status of middle and upper income countries," he explained.
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He conveyed that one of the key components is the operationalization of Indonesia's new digital taxation platform's Tax Administration Core System (Coretax) and is expected to streamline administrative processes, improve services, improve data accuracy and granularity, and strengthen the capacity of the Directorate General of Taxes (DJP) in detecting and dealing with non-compliance.
In addition, Jiro said the program would also strengthen DGT's ability to combat international tax evasion, in line with the OECD/G20 Inclusive Framework regarding the Base Erosion and Profit Shifting (BEPS) of global initiatives to ensure that multinational companies pay taxes in reasonable portions, especially in countries where the company is doing business and making profits.
"The reform will reduce compliance costs for the business world in Indonesia by further streamlining various value added tax restitution processes (VAT) important problems for small and medium enterprises through increasing and accelerating the process of resolving tax disputes," he explained.
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