In the midst of slowing tax revenue but swelling government spending, the government certainly needs additional state revenue from taxes. However, the option to raise tax rates will certainly put more pressure on the people and the business world who are feeling the sluggish purchasing power.

The Center of Economic and Law Studies (Celios) released a new report entitled Respectfully, State Officials: Don't Collect Taxes Like Hunting in a Zoo, Jakarta (12/8/2025). This study reveals that by applying the right tax instruments, the government can increase revenue to IDR 524 trillion per year.

Celios has identified alternative tax types that are considered to have the potential to increase state revenue. Namely, through the review of tax incentives that are not on target amounting to IDR 137.4 trillion, wealth tax on the 50 richest people worth IDR 81.6 trillion, carbon tax IDR 76.4 trillion, coal production tax IDR 66.5 trillion.

In addition, there is also an extractive sector windfall profit tax of IDR 50 trillion, as well as a tax on biodiversity loss of IDR 48.6 trillion.

Additional revenue can also be obtained from digital tax of IDR 29.5 trillion, an increase in inheritance tax rate of IDR 20 trillion, third home ownership tax of IDR 4.7 trillion, capital gains tax of IDR 7 trillion, and excise tax on packaged sugar-sweetened beverages of IDR 3.9 trillion which also supports public health.

According to Celios' Director of Public Policy, Media Wahyudi Askar, this figure is not just a technical calculation, but also a strategic solution to overcome the deadlock in budget discussions that have so far only focused on cuts. 

"The numbers make sense technically, but not politically. The only way to break this impasse is if people start to understand that there are alternative ways to collect taxes, that we are not actually facing a budget crisis," he said in the dissemination of the Celios research results, Jakarta, (12/8/2025).

In his presentation, Media emphasized the importance of encouraging state revenue from progressive taxes. He criticized the government's approach that only focuses on efficiency and budget cuts.

"We forget that at the same time, we must also boost state revenue from progressive taxes to fund better social protection programs, so as to tackle economic inequality," he said.

Jaya Darmawan, a researcher from Celios who was involved in the research, examined two potential tax instruments that could be applied. First, the biodiversity removal tax. Based on simulations and calculations, this tax can generate around IDR 48.58 trillion. 

"If we implement this, we can get Rp 48.58 trillion. Who is this applied to? To every entity, be it individuals, especially companies, yes, especially large entities, which have been proven to eliminate biodiversity," he said in the dissemination of the Celios report, Jakarta, (12/8/2025).

He further explained that digital tax has been a long discourse. Instead of taxing sellers in the marketplace, the government is advised to focus on giant global digital companies.

Jaya suggested the government use two approaches that can be taken from the OECD and UN Convection Tax. Namely;

• OECD approach: By calculating the global revenue of nine major companies, such as Apple, Microsoft, and Alphabet, the country's potential revenue could reach IDR 24.6 trillion.
• UN Convention Tax approach: This approach is considered fairer because it was initiated by developing countries. With a 5% withholding rate from the gross income of digital companies, the potential revenue could reach IDR 29 trillion.

In addition to the two points above, Celios also proposes several other tax instruments:

• Tax on Capital Gain: This tax will be levied on the realized gain from the sale of an asset, not on the transaction. If there is no gain, it is not taxed, which is considered fairer.
• Third Home Ownership Tax: As an alternative to the regressive increase in Land and Building Tax (PBB), this tax targets individuals who own their third home and beyond, especially those that are speculative in nature. Assuming an average house value of IDR 6 billion and a 1% rate, the potential revenue could reach IDR 1.3 trillion. This tax is also considered fairer and can be managed by local governments.
• Excise on Packaged Sugar-Sweetened Beverages: This instrument, which has often been included in government discussions, has the potential to generate up to Rp3.9 trillion. This excise aims to reduce consumption and has a focus on packaged beverages.

Policy recommendations and administrative reform

Jaya Darmawan also emphasized the importance of policy and administrative reforms to support a more equitable tax system. Some of the key recommendations are:

1. End Pro-Conglomerate Tax Incentives: The government needs to review tax incentives such as tax holidays and tax allowances that tend to benefit large corporations. Data shows a "hidden subsidy" of IDR 137.4 trillion in 2024 for businesses.
2. VAT reduction to 8%: Celios suggests that VAT be reduced to 8% instead of being increased. Based on simulations, this step can actually have a positive effect on GDP and people's income, and even indirectly has the potential to increase tax revenue by up to IDR 1 trillion.
3. Transparency and Wealth Tax: It is important to urgently discuss and draft legislation on wealth tax. In addition, the government is also encouraged to publish tax reports of large corporations(Country by Country Reporting) and strengthenreporting standards such as the Common Reporting Standard (CRS).
4. Tax Administration Reform: Administrative improvements are crucial to reduce compliance costs and improve overall tax compliance.

"By implementing these alternative tax instruments, Indonesia can get significant additional revenue. This IDR 524 trillion figure almost equals our tax revenue performance in recent months," Jaya said.

Comparison with OECD countries and Global Minimum Tax issues

Responding to the Celios report and recommendations, Minister of Finance Expert Staff for Tax Compliance Yon Arsal appreciated the report as an important part of public policy making. He explained that many debates on Indonesia's tax ratio often use a narrow definition, only calculating tax revenue from the Directorate General of Taxes (DGT) and Directorate General of Customs (DGCE).

"If we refer to the OECD definition, all tax burdens borne by society should be calculated, including non-tax revenues (PNBP) characterized by taxes, local taxes, and social security contributions," he explained in the same discussion.

He explained that if these components were included, Indonesia's tax ratio would range from 13%-13.5%, not 10.2% as often reported. This figure is relatively on par with neighboring countries such as Malaysia, and not far from Vietnam if its social security contributions are excluded.

Nonetheless, he acknowledged that Indonesia still has a gap to reach the "tipping point" of a sustainable tax ratio, which is around 15% according to the IMF study.

Yon Arsal also mentioned the comparative tax structure where Indonesia relies more onindirect taxes such as VAT, similar to most countries in Asia Pacific, Africa, and Latin America. He noted that the contribution of indirect taxes in Indonesia is around 40% of total tax revenue, while on average other countries reach 50%.

According to him, this is different from developed OECD countries that tend to rely more ondirect taxes, such as Income Tax (PPh). "Our position is in the middle. Not too big, but also not the lowest," he said.

Regarding VAT, he emphasized that its revenue depends not only on tariffs, but also on thresholds and exemptions. He mentioned that Indonesia's taxable entrepreneur (PKP) threshold of IDR4.8 billion is one of the highest in the world. He argued that while our VAT rate is relatively modest, many exemptions are granted, reducing the tax base.

Regarding tax incentives, Yon Arsal observed the global minimum tax issue, which requires all companies to pay a minimum tax of 15%. Incentive schemes such as the 0% tax holiday provided by Indonesia can cause taxation rights to be taken by the parent company's home country. For this reason, the government has issued PMK 131 which allows Indonesia to collect the tax through the QDMTT(Qualified Domestic Minimum Top-up Tax) mechanism.

Indonesian Employers Association (Apindo) Economic Policy Analyst Ajib Hamdani said, with the current fiscal posture, the business world hopes that the government can accelerate restitution, Government Borne Value Added Tax (PPN DTP), tax relaxation for UMKM, as part of a pro-growth fiscal policy.

Not only that, to accelerate economic growth, the government must encourage well-targeted fiscal and monetary incentives. "Also the most important thing is to encourage low cost economy," he said.