As Indonesia faces slowing tax revenues but rising state spending, a leading think tank has urged the government to shift away from rate hikes and adopt new progressive tax instruments that could generate an additional Rp524 trillion (US$32 billion) annually.
The Center of Economic and Law Studies (Celios) released its report, With Due Respect, Public Officials: Do Not Levy Taxes as If Hunting in a Zoo, outlining a menu of untapped tax opportunities. These range from cutting mistargeted tax incentives and imposing a wealth tax on the country’s 50 richest people, to levies on carbon, coal, biodiversity loss, and digital giants.
Celios has identified alternative types of taxes that are considered to have strong potential to increase state revenue: a review of mistargeted tax incentives amounting to Rp 137.4 trillion; a wealth tax on the 50 richest people worth Rp 81.6 trillion; a carbon tax of Rp 76.4 trillion; and a coal production tax of Rp 66.5 trillion.
In addition, there is a windfall profits tax for the extractive sector of Rp 50 trillion and a tax on biodiversity loss of Rp 48.6 trillion.
Additional revenue can also be obtained from a digital tax of Rp 29.5 trillion; an increase in inheritance tax rates of Rp 20 trillion; a tax on ownership of a third home of Rp 4.7 trillion; a capital gains tax of Rp 7 trillion; and an excise on packaged sugary drinks of Rp 3.9 trillion, which would also support public health.
According to CELIOS Public Policy Director Media Wahyudi Askar, the figure is not merely a technical calculation but also a strategic solution to break the deadlock in budget discussions that have so far focused only on cuts.
“The numbers make technical sense, but not political sense. The only way to break this deadlock is if the public begins to understand that there are alternative ways to collect taxes, that we are actually not facing a budget crisis,” he said at the dissemination of CELIOS’s research findings in Jakarta (12 August 2025).
In his presentation, Media emphasized the importance of boosting state revenues from progressive taxes. He criticized the government’s approach that focuses only on efficiency and budget cuts.
“We forget that at the same time, we also have to increase state revenue from progressive taxes to fund better social protection programs, so that we can address economic inequality,” he said.
Jaya Darmawan, a CELIOS researcher involved in the study, examined two potential tax instruments that could be applied. First, a tax on biodiversity loss. Based on simulations and calculations, this tax could generate around Rp 48.58 trillion.
“If we implement this, we can obtain Rp 48.58 trillion. To whom is this applied? To every entity, whether individuals—especially companies—particularly large entities—that are proven to have caused biodiversity loss,” he said at the dissemination of the CELIOS report in Jakarta (12 August 2025).
He further explained the long-running discourse on the digital tax. Rather than taxing sellers on marketplaces, the government is advised to focus on giant global digital companies.
Jaya recommends that the government adopt two approaches drawn from the OECD and the UN Tax Convention, namely:
- OECD approach: By calculating the global revenue of nine major companies—such as Apple, Microsoft, and Alphabet—the potential state revenue could reach Rp 24.6 trillion.
- UN Tax Convention approach: Considered fairer because it is initiated by developing countries. With a 5% withholding rate on the gross revenue of digital companies, potential receipts could reach Rp 29 trillion.
In addition to the two points above, CELIOS also proposes several other tax instruments:
- Capital gains tax: Levied on realized gains from asset sales, not on transactions. If there is no gain, it is not taxed, and thus is considered fairer.
- Tax on ownership of a third home: As an alternative to raising the regressive Land and Building Tax (PBB), this targets individuals who own a third home and beyond, particularly speculative holdings. Assuming an average home value of Rp 6 billion and a 1% rate, potential revenue could reach Rp 1.3 trillion. This tax is also considered fairer and can be administered by local governments.
- Excise on packaged sugary drinks: Long discussed by the government, this instrument could generate up to Rp 3.9 trillion. The excise aims to reduce consumption and is focused on packaged beverages.
Policy Recommendations and Administrative Reforms
Jaya Darmawan also emphasized the importance of policy and administrative reforms to support a fairer tax system. His key recommendations are:
- Ending Pro-Conglomerate Tax Incentives: The government needs to review incentives such as tax holidays and tax allowances that tend to benefit large corporations. Data indicate a “hidden subsidy” of Rp 137.4 trillion in 2024 for the business sector.
- Reducing VAT to 8%: CELIOS recommends lowering VAT to 8% instead of raising it. Based on simulations, this step could have a positive effect on GDP and household income and, indirectly, potentially add up to Rp 1 trillion in tax revenue.
- Transparency and a Wealth Tax: It is important to promptly discuss and draft a wealth tax law. The government is also encouraged to publish tax reports of large corporations (Country-by-Country Reporting) and strengthen reporting standards such as the Common Reporting Standard (CRS).
- Tax Administration Reform: Administrative improvements are deemed crucial to reduce compliance costs and increase overall tax compliance.
“By implementing these various alternative tax instruments, Indonesia can obtain significant additional revenue. The Rp 524 trillion figure nearly matches our tax-revenue performance in recent months,” Jaya said.
Comparison with OECD Countries and the Global Minimum Tax Issue
Responding to CELIOS’s report and recommendations, Yon Arsal, Special Advisor to the Minister of Finance for Tax Compliance, welcomed the study as an important input for public policy. He explained that much of the debate on Indonesia’s tax ratio often uses a narrow definition, counting only revenues from the Directorate General of Taxes (DJP) and the Directorate General of Customs and Excise (DJBC).
“If we refer to the OECD definition, the entire tax burden borne by the public should be counted, including Non-Tax State Revenue (PNBP) with tax-like characteristics, regional (local) taxes, and social security contributions,” he said at the same discussion.
He stated that if these components are included, Indonesia’s tax ratio would range between 13%–13.5%, not 10.2% as is often reported. This figure is relatively comparable to neighboring countries such as Malaysia, and not far from Vietnam if its social security contributions are excluded.
Even so, he acknowledged that Indonesia still has a gap to reach the sustainable “tipping point” for the tax ratio—around 15%, according to IMF studies.
Yon Arsal also touched on tax structure comparisons, noting that Indonesia relies more on indirect taxes such as VAT, similar to most countries in Asia Pacific, Africa, and Latin America. He said indirect taxes contribute about 40% of total tax revenue in Indonesia, while the average in other countries is around 50%.
According to him, this differs from OECD members, which tend to rely more on direct taxes such as income tax (PPh). “Our position is in the middle—not too high, but not the lowest either,” he said.
On VAT, he stressed that revenue depends not only on the rate, but also on the threshold and exemptions. He noted that Indonesia’s VAT registration threshold (PKP) of Rp4.8 billion is among the highest in the world. In his view, although Indonesia’s VAT rate is relatively not too high, the many exemptions narrow the base.
Regarding tax incentives, Yon Arsal addressed the global minimum tax, which requires all companies to pay at least 15% tax. Zero-percent tax holidays offered by Indonesia can cause taxing rights to be claimed by the parent company’s home country. To address this, the government has issued PMK 131, enabling Indonesia to collect the tax via the Qualified Domestic Minimum Top-up Tax (QDMTT) mechanism.
Ajib Hamdani, Economic Policy Analyst at the Indonesian Employers Association (Apindo), said that given the current fiscal posture, businesses hope the government can accelerate VAT refunds (restitusi), Government-Borne VAT (PPN DTP), and tax relief for MSMEs, as part of a fiscal stance that supports growth.
Beyond that, to speed up economic growth, the government should push for well-targeted fiscal and monetary incentives. “And most importantly, promote a low-cost economy,” he added.
