Sri Mulyani Called Tax Reform Cannot Be Done Alone

Minister of Finance, Sri Mulyani Indrawati. (Photo: Ministry of Finance)

JAKARTA - Finance Minister Sri Mulyani Indrawati said that Indonesia cannot carry out tax reform alone. However, international cooperation from various countries is needed in order for tax reform to be successful.

Sri said Indonesia had now reached out to other countries and multilateral institutions to help tax reform, especially in improving the tax ratio.

Not only that, said Sri, Indonesia has also been involved in fighting Base Erosion and Profit Shifting (BEPS) or the erosion of the tax base and diversion of profits and has a Double Tax Avoidance Agreement (P3B).

"We are reforming taxes to increase the low tax ratio, but we cannot do it alone," he said, at the 53rd Annual Meeting of the ADB to be held virtually, Thursday, September 17.

The treasurer assessed that cooperation on tax reform would be easier if it was carried out with nearby countries, such as those in Asia and the Pacific. This is because many countries in the region are experiencing the same thing, namely fighting tax avoidance.

Sri Mulyani added that so far Indonesia had cooperated in international tax operations with the IMF, World Bank and OECD. Indonesia also entered into multilateral agreements to prevent tax evasion and evasion.

"We have natural resources scattered, there are many core companies from many companies that actually cross the border and that opens up too much tax evasion and tax evasion," he said.

Therefore, Sri Mulyani said, her party welcomed the cooperation in taxation with ADB. According to him, the regional center will greatly facilitate the discussion of taxation at the regional level.

"So, now is very appropriate for ADB to initiate this resource initiative at the regional level tax cooperation. We look forward to reviewing the work with Asakawa as ADB's college," he said.

Previously, the Asian Development Bank (ADB) will establish a regional center to promote knowledge sharing and strengthen cooperation on tax policy and administration. This hub is aimed at cross-economies in Asia and the Pacific as well as multilateral development partners.

ADB President Masatsugu Asakawa said the hub would serve as an open platform where countries and development partners can collaborate closely to share practical experiences and knowledge, and coordinate development support.

The formation of this regional hub, said Asakawa, departed from tax revenues in developing Asia which were much lower than other countries in general. Asakawa noted, the tax contribution to state revenue was only 17.6 percent, while the average for the Organization for Economic Cooperation and Development (OECD) reached 24.9 percent.

In fact, says Asakawa, a country in Southeast Asia, the ratio of taxes to gross domestic product (GDP) is even lower than 15 percent, which is now widely considered a minimum requirement for sustainable development.

The COVID-19 pandemic has made the situation worse. High pressure on economic output and lower tax revenues leaves little room for many countries to be able to increase foreign loans.

"These figures remind us of the importance of broadening the tax base and increasing tax compliance. At the same time, we must also tackle DRM (Domestic Resource Mobilization) issues from a broader perspective," he said.